,  ...  .  . 


BOOKKEEPING 

AND 


COST  ACCOUNT 
FOR  FACTORIES 

WILLIAM  KENT 


THE 

ARTHUR  YOUNG 

ACCOUNTING 

COLLECTION 


Graduate  School  of 
Business  Administration 

Library  of  the 

University  of  California 

Los  Angeles 


This  book  is  PTTV.  on  the  last  date  stamped  below. 


7,1 


MA) 


WORKS  OF  WILLIAM  KENT 

PUBLISHED   BY 

JOHN  WILEY  &  SONS,  Inc. 


Bookkeeping  and  Cost   Accounting   for   Fac- 
tories. 

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xi  +  126  pages,  5  by  7'4'.    Cloth,  $1.00  net. 


BOOKKEEPING 


AND 


COST  ACCOUNTING 


FOR  FACTORIES 


BY 

WILLIAM   KENT,   ME.     Sc.D. 

CONSULTING   ENGINEER 

MEMBER  AMERICAN  SOCIETY  OF  MECHANICAL  ENGINEERS; 
ASSOCIATE  TAYLOR  SOCIETY 


FIRST    EDITION 


NEW  YORK 

JOHN    WILEY    k    SONS,    Inc. 

London:   CHAPMAN  &  HALL,  Limited 
1918 


400% 


Copyright,  1918 
By  WILLIAM  KENT 


PRESS  OF 

BRAUNWORTH   &  CO. 

BOOK   MANUFACTURERS 

BROOKLYN,    N.   Y. 


Bus.  Admin. 
library 

5686 


PREFACE 


The  author  of  this  treatise  was  a  bookkeeper  and  cost 
accountant  for  some  years  before  he  became  an  engineer,  and 
many  times  during  his  career  as  an  engineer  and  as  manager 
of  works  he  had  occasion  to  install  systems  of  bookkeeping 
and  cost  accounting  and  to  audit  books.  In  this  way,  and 
by  reading  much  of  the  extensive  literature  on  accounting,  he 
has  kept  in  touch  for  over  forty  years  with  the  development 
of  accounting  practice.  More  than  twenty  years  ago  he  was 
urged  by  the  president  of  one  of  the  largest  manufacturing 
corporations  in  New  England  to  write  a  book  on  factory  cost 
accounting,  but  he  was  then  too  busy  with  other  matters 
and  the  suggested  book  had  to  be  postponed  to  the  indefinite 
future.  Some  three  years  ago  the  suggestion  was  repeated 
at  a  conference  of  several  professional  accountants,  who 
agreed  that  the  literature  on  cost  accounting  was  in  a  most 
chaotic  shape  and  was  altogether  unsatisfactory. 

The  author  then  began  a  serious  re-study  of  the  subject, 
by  reading  many  of  the  most  recent  books,  both  English 
and  American  (there  has  been  a  large  crop  of  them  in  the 
last  ten  years),  re-reading  the  articles  on  accounting  that 
had  appeared  in  Engineering  Magazine  and  in  the  Transac- 
tions of  the  American  Society  of  Mechanical  Engineers  during 
the  last  twenty-five  years,  and  by  visiting  many  factories  and 
conferring  with  their  managers  and  cost  accountants.  The 
result  of  the  study  was  to  confirm  the  statement  that  the  word 
"chaos"  properly  describes  the  bulk  of  the  literature,  and  the 
cost  accounting  methods  in  most  factories.  There  are  many 
good  books  on  bookkeeping  and  ordinary  accounting,  and 
some  useful  books  on  certain  parts  of  the  general  subject  of 
cost  accounting,  but  there  seems  to  be  a  lack  of  books  cover- 
ing a  wide  field  and  representing  the  best  modern  practice. 

The  principal  faults  of  the  existing  books  may  be  listed 
as  follows: 

1.  Over-conservatism.  Adherence  to  old-fashioned  theories 
and  fallacies. 

2.  Over-development  of  red  tape,  leading  to  unnecessary 
clerical  work. 

3.  Too  much  variety  and  novelty  of  method. 

4.  Vagueness  and  lack  of  detail  in  descriptive  text. 

5.  Incompleteness.    Partial  treatment  of  complex  subjects. 
Accounting  practice  in  factories,  and  that  of  professional 

accountants  who  are  introducing  their  "systems"  into 
factories,  varies  all  the  way  from  excellent  to  very  poor. 
Some  accountants  are  in  advance  of  the  books  both  in  theory 
and  in  practice.  Others  have  not  yet  come  abreast  of  the 
modern  ideas  of  accounting. 

A  few  of  the  fallacies  that  are  rapidly  being  discarded  are: 
that  interest  on  investment  forms  no  part  of  factory  cost; 
that  business  and  selling  expense  are  part  of  cost;  and  that  a 


profit  cannot  arise  until  a  thing  is  sold.  Wrong  methods  of 
distributing  burden  are  most  common.  The  ratio  of  non- 
productive to  productive  labor  is  by  many  still  considered  to 
be  an  index  of  the  efficiency  of  the  manager.  "Tying  the 
costs  to  the  general  books"  is  erroneously  supposed  to  prove 
the  accuracy  of  the  cost  accounts.  Inventories  are  priced  and 
profits  and  losses  are  computed  on  the  basis  that  the  goods  in 
the  warehouse  and  stores  are  worth  just  what  it  cost  to  produce 
them,  possibly  many  months  earlier,  although  market  values 
may  have  advanced  or  declined  in  the  meantime.  Inventories 
are  inflated  by  charging  to  the  cost  of  finished  product  the 
cost  of  keeping  part  of  the  factory  idle. 

The  time  has  arrived  when  there  is  a  need  for  a  systematic 
treatise  on  cost  accounting  which  will  start  the  student  at 
the  beginning  with  the  elementarv  principles  of  double  entry 
bookkeeping  and  lead  him  through  factory  accounting  to 
cost  accounting,  giving  him  not  only  the  fundamental  theory 
in  accordance  with  the  views  of  the  ablest  modern  accountants, 
but  also  warning  him  against  the  time-worn  fallacies  of  the 
older  school.  Such  a  treatise  the  author  has  undertaken  to 
prepare. 

The  first  three  chapters  treat  of  elementary  principles, 
titles  and  definitions  of  accounts,  and  the  evolution  from  the 
ordinary  journal  and  ledger  systems  into  the  labor-saving 
methods  of  separate  purchase  and  sales  ledgers,  column 
cash  books  and  journals,  up  to  the  monthly  column  ledger, 
and  finally  to  the  combined  journal-ledger,  by  means  of  which 
the  troublesome  trial  balance  is  dispensed  with.  The  Fed- 
eral Trade  Commission's  system  of  accounts  for  retail  mer- 
chants is  then  discussed,  and  it  is  shown  how  it  can  be  im- 
proved by  the  use  of  the  journal-ledger.  Incidentally  the 
Commission's  views  on  Merchants'  Selling  Prices  and  Turn- 
over are  criticised. 

Factory  Accounting  is  then  shown  to  be  distinct  from  com- 
mercial bookkeeping,  and  the  first  principle  stated  is  that  in 
the  general  books  of  a  manufacturing  concern  the  operations 
of  the  factory  should  be  treated  as  if  they  were  those  of  a 
separate  business,  belonging  to  outside  parties.  Only  two 
accounts  need  be  kept  with  the  factory,  one  for  the  investment 
in  real  estate  and  equipment,  and  the  other,  for  the  opera- 
tions of  the  factory,  called  Manufacturing  or  Factory  Oper- 
ating account.  This  account  is  charged  with  all  disburse- 
ments for  factory  operations,  including  purchases  of  material, 
payment  of  salaries,  wages  and  expenses,  together  with 
monthly  charges  against  the  factory  for  its  proportion  of 
taxes,  insurance,  administration  expense,  interest  on  invest- 
ment, and  reserve  for  depreciation.  The  account  is  credited 
with  the  "factory  cost"  or  "warehouse  value"  of  all  goods 
shipped  from  the  factory. 


IV 


PREFACE 


In  the  factory  books  an  account  is  opened  with  "Com- 
pany," or  "Private  Ledger,"  which  is  the  reverse  of  Factory 
Operating  account  in  the  general  ledger.  It  is  credited  with 
all  charges  made  by  the  Company  against  the  factory  and 
charged  with  the  value  of  the  goods  shipped.  No  account  of 
selling  expenses  is  kept  in  the  factory  books. 

When  "  Company  "  is  credited  with  the  values  received 
from  it,  charges  for  the  monthly  total  of  these  values  are 
made  to  Factory  Cash,  Stores,  Labor,  and  Burden,  and  in 
recording  the  factory  operations  these  four  accounts  are 
credited  and  Work  in  Process,  Worked  Material,  and  Finished 
Product  are  debited.  Numerous  examples  are  given  to  show 
how  these  principles  are  worked  out  in  practice. 

Cost  Accounting  is  then  taken  up,  and  the  author  divorces 
the  accounting  department  from  the  cost  department,  having 
the  latter  determine  costs  by  an  independent,  method.  "A 
new  definition  of  Factory  Cost  is  now  needed.  It  is  not 
post-mortem  cost,  what  the  goods  cost  last  year,  but  what  it 
now  costs  to  reproduce  them  or  what  they  will  probably  cost 
during  the  remainder  of  the  current  year,  assuming  that  the 
factory  runs  at  its  normal  rate  "  (page  49). 

Various  methods  of  cost  finding  are  described,  and  the 
use  of  job  tickets  and  stores-issue  tickets  is  fully  explained 
with  examples.  A  long  chapter  is  devoted  to  Distribution  of 
Burden,  and  the  errors  of  old  methods  are  shown.  The 
author  considers  the  machine-hour  rate  as  the  basis  of  the  best 
system  for  factories  making  "  assembled  "  products,  but 
shows  how  certain  modifications  of  it  may  make  the  costs 
more  accurate,  and  in  the  "Last  Word  on  Burden;  Standard 
Burden  per  Unit  of  Product"  (page  81),  explains  a  system  by 
means  of  which  the  clerical  labor  of  cost  finding  may  be 
greatly  lessened. 

Other  chapters  treat  of  Depreciation,  Inventory  Valuation, 
Appraisals,  "Systems"  and  "Red  Tape,"  Daily  and  Monthly 
Records,  Charting  of  Statistics,  Cost  of  Idleness,  Problems 
and  Difficulties,  Uses  of  Costs,  Various  Opinions  about  Costs, 
Classification,  Symbols,  Bookkeeping  by  Machinery.  These, 
with  the  introductory  chapters  take  up  about  one-half  of  the 
book.    The  remainder  is  devoted  to  practical  cost  accounting 


in  various  industries,  including  a  blast  furnace,  a  steel  works, 
foundries,  a  hardware  factory,  a  machine  shop,  a  bakery,  a 
textile  mill,  a  woodworking  shop,  cost  and  price  of  coal, 
power  plants,  and  printing  shops.  The  final  chapter  contains 
examples  of  reports  to  stockholders  of  large  corporations, 
numerous  blank  forms  in  addition  to  those  given  in  other 
chapters,  and  a  list  of  books  on  cost  accounting  and  on  scien- 
tific management. 

The  author  here  wishes  to  acknowledge  his  indebtedness  to 
the  many  officers  of  corporations,  accountants  and  others  who 
have  assisted  him  in  his  labors  by  allowing  him  to  study  their 
cost  accounting  methods.  He  is  under  especial  obligations  for 
courtesies  extended  by  the  following:  Plimpton  Press,  Nor- 
wood, Mass.;  New  England  Butt  Co.,  Providence,  R.  I.; 
Yale  &  Towne  Mfg.  Co.,  Stamford,  Conn.;  Nash  Engineer- 
ing Co.,  South  Norwalk,  Conn.;  Federal  Printing  Co.,  New 
York:  National  Meter  Co.,  Brooklyn,  N.  Y;  Tabor  Mfg.  Co., 
Miller  Lock  Co.,  and  Henry  Disston  &  Sons,  Philadelphia, 
Pa.;  Ferracute  Machine  Co.,  Bridgeton,  N.  J.;  H.  H.  Franklin 
Mfg.  Co.,  Syracuse,  N.  Y.;  Lodge  &  Shipley  Co.,  and  The 
Lunkenheimer  Mfg.  Co.,  Cincinnati,  0.;  and  The  Joseph  & 
Feiss  Co.,  Cleveland,  O.  He  is  indebted  also  to  Mr.  Gershom 
Smith,  Manager  of  the  Tabulating  Machine  Co.,  New  York, 
and  to  Mr.  Albert  Walton,  manufacturing  accountant  and 
industrial  engineer,  Philadelphia,  who  have  kindly  contrib- 
uted matter  which  will  be  found  under  their  names  in  the  text. 

Attention  is  called  to  some  unusual  features  of  the  book, 
designed  to  make  it  convenient  for  readers  and  students, 
viz.,  the  size  of  the  page,  8J  by  1 1  inches,  double  column,  with 
two  sizes  of  type,  to  facilitate  reading  and  to  give  space  for 
large  forms  and  tables  without  using  folders;  the  use  of  the 
wax  process  instead  of  photographic  methods  of  reproducing 
forms;  the  substitution  in  the  forms  of  clear  lower  ease  type 
for  capitals  and  block  letters  which  are  often  difficult  to  read; 
the  very  complete  table  of  contents  and  index  with  occasional 
use  of  full-face  type  to  call  attention  to  the  most  important 
subjects;  the  index  to  forms  and  to  names  of  authorities 
quoted ;  and  the  use  of  easily  read  figures  in  the  tables,  with 
diagonal  lines  for  the  fractions  in  all  6-point  type. 


CHAPTER  I.     BOOKKEEPING 
Elementary  Principles 

PAOE 

The  Ledger.     The  Cash  Book 1 

Labor-saving  Methods 2 

Payment  of  Bills 2 

Single  and  Double  Entry 2 

The  Journal 3 

Rules  for  Journalizing 3 

Loss  and  Gain  Accounts 4 

Invoice  Book.     Invoice  Ledger 4 

Sales  Ledger 4 

Trial  Balance 4 

The  Bookkeeper,  the  Accountant,  and 

the  Engineer 5 

Relation  between  the  Accountant  and 

the  Efficiency  Engineer 5 

CHAPTER  II.  TITLES  AND 
DEFINITIONS  OF  ACCOUNTS 

Stock,  Partner's  Account 6 

Capital  Stock 6 

Profit  and  Loss 6 

Surplus;  Dividend 0 

Merchandise 6 

Trading,  Purchase  Acct.,  Sales  Acct.  7 

Mdse.  Returned;    Sales  Allowances.  7 

Accounts  Receivable  and  Payable. ...  8 

Bills  (or  Notes)  Receivable 9 

Bills  (or  Notes)  Payable 9 

Bill  Book 9 

Balancing  Bills  Receivable  and  Pay- 
able   10 

Interest  Account 10 

Suspense  Account 10 

Property  Accounts 10 

Balancing  Property  Accounts 11 

Investments  in  Bonds  and  Stocks ...  11 

Mortgage  or  Bonded  Indebtedness .  .  11 

Expense  Accounts 11 

Advance  Payments;  Accrued  Ex- 
penses    11 

Insurance  Account;  Taxes 11 

Consignment  Accounts 12 

Commission  Business 12 

Account  Current;  Account  Sales.  ...  12 

Classification  of  Accounts 12 

Accounting  Code 12 

Capital,  Capital  Stock,  Definitions.  .  12 

CHAPTER  III.  THE  EVOLU- 
TION OF  BOOKKEEPING  — 
THE  COLUMN  LEDGER 

Journalizing  and  Posting 13 

Discount  Column  in  Cash  Book 14 

Accounts  Receivable  and  Payable. . .  14 


CONTENTS 

PAOE 

The  Column  Cash  Book 15 

The  Invoice  Register 15 

The  Bill  Book 15 

The  Eight-column  Journal 15 

The  Safeguard  Ledger 1(5 

The  Column  Ledger 17 

Combined  Journal-ledger 17 

Monthly  Column  Ledger 19 

Balance  Sheet 20 

Notes  on  the  Journal-ledger 20 

Check  on  Journal-ledger 21 

CHAPTER  IV.  ACCOUNTS  FOR 
RETAIL  MERCHANTS.  SELL- 
ING PRICES.     TURNOVER 

The    Federal    Trade    Commission's 

System 22 

System  of  Accounts  for  Retail  Mer- 
chants    22 

Monthly  Summary  of  Business 22 

Explanation  of  the  Accounts 23 

Balance  Sheet 23 

Profit  and  Loss  Statement 24 

Journal  and  Ledger  Entries 25 

Balance  Sheet 27 

Suggested  Improvements  in  System .  2S 

Reducing  the  Number  of  Accounts .  .  28 

Reserves;  Depreciation;  Surplus....  30 

Profit  and  Loss  Adjustment 30 

Monthly   Expense   Ledger;    Column 

Ledger 31 

The  Condensed  Accounting  System. .  32 

Expense  Distribution 32 

Deferred  Profit  and  Loss  Items 32 

Merchants'  Selling  Prices 33 

Factory  Cost  and  Selling  Price 33 

Formulas  for  Profit  and  Loss 33 

Distribution  of  Burden 34 

Turnover 34 

Turnover  of  Goods  and  of  Capital. .  .  34 

CHAPTER    V.      FACTORY     AC- 
COUNTING 

Separation  of  Factory  from  General 

Books 35 

Products,  Continuous,  Single,  Varied  35 

Recorded  Costs 35 

Normal  Costs 36 

Different  Kinds  of  Industries 36 

Company  or  Private  Ledger 36 

Subdivision  of  Total  Expenditures. . .  36 

Inter-departmental  Accounts 36 

The  Factory  Books 36 

Opening  a  Set  of  Factory  Books ....  37 

Journal  and  Ledger  Entries 38 

v 


PA  OB 

Trial   Balance   and   Monthly  State- 
ment    39 

Accounting  Code 39 

Transfer  and  Balancing  Entries 39 

Company's  General  Ledger 40 

Factory  General  Ledger 41 

A  Simple  Accounting  System 42 

Journal  and  Ledger  Entries 42 

Inventory 43 

Adjustments.     Auditor's  Report.  ..  .  44 

Code  of  the  Cost  Accountant 45 

Company  Ledger;  Factory  Ledger  . .  45 

Burden  Account 46 

Statistical  Sheet,  Mfg.  Accounts  ....  46 

The  Auditor's  Comments 46 

Depreciation  Reserve 47 

Expense  Assets 47 

Suspense  Account. 48 

Contingent  Liability 48 

Dividend  and  Surplus 48 

Error  of  Uniform  Overhead 48 

CHAPTER  VI .    COST  ACCOUNT- 
ING 

Factory  Cost.    Definition 49 

Divorce  Accounting  from  Cost 49 

Starting  a  Cost  System 50 

The  Stores  System 50 

Labor  Charges 50 

Factory  Orders 50 

Standing  Orders,  Office  Orders 50 

Production  Orders,  Job  Orders,  Small 

Orders 50 

Subdivisions  of  Pay  Roll 51 

Time  Keeping 51 

Stores  Account 51 

Petty  Stores 51 

Transactions  and  Journal  Entries ...  52 

Valuation  of  Stores 52 

Profit  Due  to  Increase  in  Value 52 

Inventory  of  Warehouse  and  Stores. .  53 

Inventory  of  Partly  Finished  Work. .  53 

Checking  the  Continuous  Inventory.  53 

Cost  Keeping  by  Pieces  of  Paper. ...  54 

Balance  of  Stores 54 

Production  Orders 54 

Job  Tickets 54 

Monthly  Statements  of  Bills 54 

Voucher  Checks 54 

Check  Register 54 

Requisitions 55 

Stores  Credit  Card 55 

Burden  Distribution  Book 55 

Cost  Card,  Finished  Product 55 

Cards  for  Production  and  for  Cost 

Keeping 55 

Limitation  of  the  Cost  Accountant.  56 


VI 


CONTENTS 


CHAPTER  VII.  COST  FINDING 
METHODS.  USE  OF  THE  JOB 
TICKET 

PAGE 

Time  and  Job  Tickets 57 

Weekly  Pay  Voucher 58 

Bonus  Figuring 58 

Workman's  Yearly  Record 59 

Effect  of  Bonus  on  Profits 59 

Examples  in  Use  of  Job  Tickets 59 

Problem  in  Cost  Finding 60 

Clerical  Work  on  Tickets 60 

Information  on  the  Job  Ticket 61 

Storekeeper's  and  Burden  Records.  .  61 

Office  Orders 61 

Operation  Order  or  Job  Ticket 61 

Definition  of  "  Job  " 62 

Piece  Cost  Card 62 

Comparison  of  Burden  Rates 63 

A  Complete  Job  Ticket 63 

Sorting  of  Tickets 64 

CHAPTER  VIII.    DISTRIBUTION 
OF  BURDEN 

Yearly  Burden  Expenditure 65 

Percentage  on  Direct  Labor 65 

Man-hour  Method 65 

Variable  Factors  of  Burden 66 

Department  Method 66 

Class-of-Product  Method 67 

Comparison  of  Different  Methods.  . .  67 
Calculation  of  Machine-shop  Burden 

67,  68 

Modification  of  Machine-rate  Burden  69 

The  Job  Burden  Rate 69 

Burden  Table 70 

Burden  in  Minor  Departments 70 

Blacksmith  and  Carpenter  Shops. ...  70 

Foundry 71 

Polishing  and  Plating  Rooms 71 

Grinding  Room 72 

Figuring  Burden  on  Three  Machines  72 
Departmental  and  Class  Burdens .  .  73,  74 

Total  Burden 74 

Total  Labor  and  Burden  Costs 74 

Use  of  Normal  Burden  Figures 75 

Keeping    Labor   and    Material   Cost 

without  Burden 76 

Classification  of  Expenditures  by  Per- 
centages    76 

Ratio  of  Non-productive  to  Produc- 
tive Labor 77 

A  Problem  in  Burden  Charging 77 

Another  Problem 78 

The  Supplementary  Rate 78 

Application    of    the    Supplementary 

Rate 79 

A  Common  Fallacy 80 

A  False  Theory 80 

The  Correct  Theory 81 

The  Last  Word  on  Burden.     Standard 

Burden  per  Unit  of  Product 81 

Saving  of  Clerical  Work 82 

Factory  Cost  and  Warehouse  Value. .  83 


PAGE 

Interpretation  of  the  Recorded  Cost 

Figures 84 

Advantage  of  the  Standard  Schedule .  84 
Charge  Unabsorbed  Overhead  to  the 

Sales  Department 84 

CHAPTER  IX.    DEPRECIATION. 
INVENTORY  VALUATION. 
APPRAISALS 
Method  of  Treating  Repairs  and  De- 
preciation    85 

Depreciation,  Theoretical  and  Actual  86 
Relation  of  Depreciation  to  General 

Expense 86 

Four  Methods  of  Treating  Deprecia- 
tion    86 

Depreciation  Table 87 

Valuation  of  Machinery 87 

Table,  Depreciation  at  Different  Rates  88 
Relation    between    Perpetual-Inven- 
tory Valuation  and  Appraised  Valu- 
ation    89 

Table,  Standard  Depreciation  Rates .  90 

Appraisals  for  Insurance  Purposes.  .  91 

Appraisals  of  Manufacturing  Property  91 

CHAPTER    X.      SYSTEMS    AND 

RED  TAPE.  FUNDAMENTALS 

OF  A  COST  SYSTEM 

Use  of  Red  Tape 92 

The  System-mad  Manager 92 

Cost  Systems  in  Government  Shops.  92 

The  Card  System 93 

Cost    Accounting    at    the    Brooklyn 

Navy  Yard 94 

A  Better  System 94 

Federal    Trade    Commission's    Cost 

System 94 

Functions  of  a  Cost  System 95 

Balance  .Sheet 96 

Commercial  and  Factory  Ledger ....  97 

Condensed  Factory  Ledger 98 

Distribution  of  Overhead 98 

CHAPTER     XL       DAILY     AND 

MONTHLY  RECORDS. 

CHARTING    OF    STATISTICS. 

COST  OF  IDLENESS 

Daily  Record  of  Work  in  Progress.    .  99 

Monthly  Comparative  Cost  Record. .  100 

Perpetual  Inventory 100 

Monthly  Report  of  Product 100 

Weekly  Labor  Report 100 

Weekly  and  Monthly  Cost  Periods   .  100 

Memoranda  for  Journal  Entries 101 

Journal-Ledger 101 

Monthly  Record  of  Progress 102 

Tabulating  Monthly  Ledger  Totals.  .  103 

The  Charting  of  Costs 103 

The  Exception  Principle 103 

Diagram  of  the  Accounting  System .  .  103 

Diagram  of  Annual  Exhibit 104 

Idleness  Charts 105 


PAGB 

Chart  of  Iron  Works  Costs 106 

Cost  of  Pig  Iron 107 

Chart  of  Reduction  of  Labor  Costs.  .    107 

CHAPTER  XII.  PROBLEMS  AND 
DIFFICULTIES.       STANDARD 
COST 
Costs  when  the  By-product  from  One 

Article  is  used  in  Making  Another  108 
Cost  of  Making  Disks  from  Scrap .  .  .  108 
Factory  Costs,  Recorded  and  Normal  109 

Fixing  the  Value  of  Scrap 109 

The  Cost  of  Silver 110 

How  to  Reduce  Costs Ill 

Predetermination  of  Costs Ill 

Standard  Costs Ill 

Cost  Formulas Ill 

Causes  of  High  Cost  in  Government 

Arsenals 112 

Reducing  the  Cost  of  the  Cost  System  112 

Problem,  the  Cost  of  Locks 112 

Time-keeping  Systems 113 

Piece  Cost  Cards 113 

Investigating  the  Cost  System 114 

Modifying  the  Cost  System. 115 

Problem,  Cost  of  Engines  and  Tur- 
bines     115 

Three  Years'  Statistics 116 

Figuring  Profits  and  Losses 117 

The  Books  do  not  Tell  the  Whole 

Story 118 

Scientific  Management 119 

CHAPTER  XIII.   USES  OF  COSTS. 
VARIOUS    OPINIONS    ABOUT 
COSTS 
Conclusions  to  be  Drawn  from  Cost 

Statistics 120 

Uses  of  a  Cost  System 120 

Definition  of  Factory  Cost 121 

Objects  of  Cost  Keeping 121 

Controlling  Accounts 121 

Theories  of  Costs 122 

Interpret  the  Figures  into  Actions.  .  .   122 
Functions  of  the  Cost  Accountant.  .    122 

The  Manager  of  the  Future 122 

Devising  a  Cost  System 123 

Part   of   the    Cost    System    may   be 

Dropped 123 

Tying  the  Cost  System  to  the  Gen- 
eral Accounts 124 

Wage  Systems.     The  Bonus  Plan  ...  .    124 

The  Flow  of  Values 124 

Predetermined      Costs.        Standard 

Costs 126 

Bad  Cost  Systems 126 

Axioms  Concerning  Costs 127 

Subdivisions  of  Cost 127 

Cost  of  Organization,  of  Patents,  etc.  128 

Interest  Charged  to  Cost 128 

Inflated  Inventories 128 

The  Rate  of  Interest 128 

Problems  in  Charging  of  Interest.  .  .    128 


CONTENTS 


vn 


CHAPTER  XIV.  CLASSIFICA- 
TION. SYMBOLS.  BOOK- 
KEEPING BY  MACHINERY 

PAGE 

Classification.     Symbols 131 

Letter  Symbols  versus  Numbers 132 

List  of  Operation  Symbols 132 

Nomenclature  of  Machine  Details.  . .  132 

Record  of  Equipment 133 

Method  of  Indexing  and  Filing 134 

Plant  Inventory 134 

Bookkeeping  Machines 135 

List  of  Makers  of  Machines 135 

The  Hollerith  Tabulating  System..  135 

Samples  of  Tabulating  Cards 137 

Elapsed  Time  Recording  Machine .  .  .  138 

The  Periodograph 138 

Monroe  Calculating  Machine 138 

Marchant  Calculator 139 


CHAPTER  XV.  OLD-SCHOOL 
ACCOUNTING  IRON  WORKS 
BOOKKEEPING 

Bookkeeping  at  a  Pennsylvania  Fur- 
nace   140 

Ledger  Accounts  at  a  Blast  Furnace.  141 

Sample  of  Cash  Book 141 

Weekly  Report  of  a  Furnace 141 

Labor  Book 142 

Bookkeeping  at  a  New  Jersey  Furnace  143 

Journal  Entries 143 

Cost  of  Pig  Iron 145 

Statistical  Statement 146 

A  Better  Method 146 

Iron  Works  Ledger,  New  Form 147 

Combined  Journal  Ledger 148 

Cost  of  Iron  when  By-products  are 

Made 149 

Example  of  Tying  Costs  to  Books. .  .  149 

Cost  Keeping  in  a  Rolling  Mill 150 

Machine-hour  Rates  in  a  Steel  Works  150 

CHAPTER  XVI.     MODERN  AC- 
COUNTING   SYSTEMS    FOR 
STEEL  WORKS 

A  Steel  Work's  Accounts 151 

List  of  Ledger  Accounts 152 

Description  of  Accounts 152-162 

Trial  Balance,  Balance  Sheet 163 

Income  Statement 163 

Forms  used  by  Mr.  Walton 164-169 

Penna.  Steel  Co.  Ledger  Accounts. .  .    170 

CHAPTER     XVII.         FOUNDRY 
COSTS— COST  OF  COAL 

Cost  Finding  in  an  Iron  Foundry ....  171 

Variable  Conditions  in  a  Foundry.  .  .  171 
Cost  Finding  in  Brass,  Bronze,  and 

Aluminum  Foundries 172 

Iron  Foundry  Cost  Sheets 173 


PAGE 

Estimating 174 

A  Cost  Statement 174 

Forms  and  Routine 175-178 

Caution  in  Regard  to  Use  of  Forms. .    178 

Cost  and  Price  of  Coal 178 

Cost  of  a  Ton  of  Anthracite  Coal. . . .   179 

CHAPTER  XVIII.  HARDWARE 
FACTORY  AND  MACHINE 
SHOP  ACCOUNTING 

Accounting   System   in   a   Hardware 

Factory 180 

Productive  Classes  and  Departments.  180 

Accounting  Symbols 180 

Stores  Records 180 

Time   Keeping,   Verification   of   Pay 

Roll 181 

The  Tabulating  Machine  Record 182 

Statistical  Sheets,  Pay  Roll  Distri- 
bution     182 

Accounting     Distribution      of     Pay 

Roll 183 

Journal  Entries 184 

Works  Ledger 184 

Residuum  Expense 185 

Determination  of  Costs 185 

Recorded  Cost  (Shop  Cost) 186 

Cost  of  Finished  Product 186 

Part  Cost  Card 186 

Present  Cost  Estimate 186 

Overhead  Percentage 186 

Slippage 186 

Unit  Costs  of  Product 187 

Original  and  Revised  Costs 187 

Estimates  on  Special  Work 188 

Annual  Inventory 188 

Statistical  Reports 188 

Labor  Turnover 188 

Monthly    Estimate    of    Increase    of 

Inventory  and  Profit  or  Loss 189 

Various  Forms 191 

A  Machine-shop's  Cost  System 192 

Incentive  for  Cost  Department 192 

Fundamental  Principles 192 

Wages  Record.     Time  Cards 192 

Relative  Cost  Factor  or  Cost  Num- 
ber    193 

Shop  Expense  Rate 194 

Cost  Collecting  Cards 194 

Expense  Distribution  Sheet 194,  199 

General  Business  Expense 194 

Stores 194 

Work  of  the  Bookkeeper 195 

Worked  Materials  in  Process 196 

Various  Forms 197-201 

General  Ledger  Balance  Sheet 198 

Proof  of  the  Cost  System 198 

Criticism  of  the  System 198 

Distribution  of  General  Business  and 

Shop  Expense 200 

Shop  Expense  Rate 201 

Sources  of  Error 202 


CHAPTER  XIX.  COSTS  IN  A 
WOODWORKING  SHOP;  A 
BAKERY;  A  TEXTILE  MILL; 
A   POWER   PLANT 

PAGE 

Woodworking  Shop,  Time  Study  203 

Statistical  Records  and  Charts 204 

Burden  Distribution 21 1 1 

Cost  Estimate 205 

Planning  and  Scheduling  Work 205 

Use  of  the  System  in  Other  Businesses  206 

Cost  Accounts  for  a  Bakery Jii(i 

Textile  Cost  Accounting 206 

Cost  Estimates  and  Cost  Records .  .      21 K  i 

Lot  Costs;  Operation  Costs 207 

Power  Plant  Operating  Costs 208 

Classification  of  Expenses 208 

Comparative  Cost  of  Operation  and 

Maintenance 209 

Standard  Costs 210 

Curves  of  Standard  Costs 210 

Standardization  of  Protective  Charges  211 
Comparison  of  Costs  and  Efficiencies  211 

CHAPTER   XX.      COSTS      IN   A 
PRINTING  SHOP 

Subdivision  of  Labor 213 

Apportioning  Expense  to  Depart- 
ments    213 

Plimpton  Press 214 

A  Standard  Cost  System  for  Printers  21(1 

Synopsis  of  Forms 217 

Statement  of  Cost  of  Production ....   218 
Chargeable       and       Non-changeable 

Hours 218 

Monotype  Cost  Records 220-222 

Titles  and  Definitions  of  Accounts. .  .   223 

Federal  Printing  Co 224 

Forms  Used 224-236 

CHAPTER  XXI.  REPORTS  TO 
STOCKHOLDERS;  EDUCA- 

TION OF  ACCOUNTANTS; 
COST  OF  IDLENESS;  MISCEL- 
LANEOUS FORMS;  BIBLIOG- 
RAPHY. 

Reports  to  Stockholders  of  Corpora- 
tions     237 

Surplus  Earns  Dividends 237 

Bell  Telephone  System 2.'i~ 

Genera]  Electric  Co 238 

Westinghouse  Electric  &  Mfg.  Co.  . .  239 
College  Education  in  Accounting.  ..  .  240 
Technical  Experience  Necessary. ...     211 

An  English  View 241 

Expense  of  Idleness 241 

Miscellaneous  Blank  Forms 243-250 

Books  on  Cost  Accounting 251 

Books  on  Industrial  Engineering....   252 

Topical  Index 255 

Index  op  Forms  and  Blanks 259 

Index  of  Authorities  Quoted.  .  .  .  261 


BOOKKEEPING   AND   COST   ACCOUNTING  FOR   FACTORIES 


CHAPTER  I 


BOOKKEEPING 


ELEMENTARY  PRINCIPLES 

Bookkeeping  is  a  systematic  method  of  keeping  accounts 
of  business  transactions. 

Accounts  are  personal  or  non-personal: 

A  personal  account  is  a  record  of  the  transactions  of  a 
business  with  a  particular  person,  firm  or  corporation. 

A  non-personal  account,  sometimes  called  a  "  representa- 
tive account,"  is  one  kept  with  things  dealt  in,  such  as  Cash, 
and  Merchandise,  or  Bills  Receivable,  and  with  expenditures 
for  or  receipts  from  other  things  than  purchases  and  sales  of  the 
goods  dealt  in,  for  example,  Expense  Account ;  Interest  Account. 

The  Ledger.  An  account  is  usually  kept  in  a  Ledger. 
The  name  of  the  account  is  written  at  the  top  of  the  page. 
In  the  ordinary  form  of  ledger  the  page  is  divided  into  two 
sides,  left  and  right  hand,  called  the  Debtor  and  Creditor 
(or  Debit  and  Credit)  sides,  and  is  ruled  as  shown  below: 


Dr. 


John  Jones 


Cr. 


1916 

1     J 

i  ii 

Feb.  1 

To  Md«e. 

24 

l7l0ii 

Feb.    15 

By  Cash 

II 

2635 

3 

Ml 

vlz:>[l 

I 

1      ! 

The  meaning  of  these  entries  is  that  John  Jones  purchased 
merchandise  on  Feb.  1,  $17.10  and  on  Feb.  3,  $9.25,  the 
details  of  the  sale,  corresponding  with  the  bills  or  sales- 
tickets  made  at  the  time  of  the  sale,  being  recorded  on  pages 
24  and  25  of  some  other  book,  such  as  a  Sales  Book  or  Day 
Book,  and  that  he  paid  the  account  on  Feb.  15,  as  recorded 
on  page  11  of  a  Cash  Book.  The  words  "  To  "  and  "  By  " 
are  used  as  a  matter  of  custom  on  the  debit  and  credit  sides 
respectively,  but  they  are  often  omitted. 

In  this  system  of  bookkeeping  there  are  at  least  three 
books  involved,  two  books  of  original  entry,  the  Sales  Book 
and  the  Cash  Book,  and  a  third  book,  the  Ledger,  into  which 
entries  are  transferred  or  "  posted  "  from  the  other  books. 
In  some  lines  of  business,  such  as  that  of  a  country  store, 
the  Ledger  may  be  a  book  of  original  entry,  and  it  may  be 
ruled  as  follows: 


1916 


John  Jones 


Feb.  I    10  beef,  20 
30  pork,  20 
25  sugar,  7 
6  dz.  eggs,  25 
2  lb.  coffee,  30 
I  bbl.  flour 


Feb.  3 


I  pc.  dress  gds. 
I  pr.  boots 


Paid  Feb.  I  5 


2 

00 

6 
1 
1 

00 
75 
50 
60 

5 

25 

17 

10 

4 

00 

5 

25 

9 

25 

26 

35 

In  this  ledger  all  the  columns  are  debit  columns,  and  there 
may  be  three  or  more  money  columns,  depending  on  the  size 
of  the  page. 

The  Card  Ledger.  The  ledger  may  be  kept  on  cards, 
which  are  filed  alphabetically  in  a  drawer,  instead  of  in  a 
book. 

The  Bill  Files.  The  ledger  and  the  sales  book  may  even 
be  dispensed  with  altogether.  If  a  bill  is  delivered  to  John 
Jones  each  time  he  makes  a  purchase,  a  carbon  copy  of  the 
bill  may  be  put  in  a  folder  or  envelope  marked  with  his 
name,  and  kept  in  a  filing  case  or  drawer  of  Unpaid  Bills 
in  which  the  folders  are  arranged  alphabetically.  If  bills 
are  rendered  monthly,  a  sales  memorandum  or  sales  ticket 
for  each  sale  is  similarly  filed,  and  at  or  near  the  end  of  the 
month  all  the  John  Jones  tickets  are  taken  out  of  the  folder 
and  a  type-written  bill  and  a  carbon  duplicate  are  made  from 
them,  the  duplicate  being  placed  in  the  unpaid  bill  file  while 
the  original  is  sent  to  Jones. 

Originals  should  be  kept.  The  original  sales  tickets,  or 
the  carbon  copies  of  the  original  bills  delivered  with  the 
several  sales,  should  be  filed  carefully  and  preserved  for  two 
years  as  a  precaution  in  case  any  dispute  should  arise  about 
the  account. 

When  Jones  pays  his  bill  or  bills,  the  duplicates  are  taken 
out  of  the  unpaid  bill  file,  marked  paid  and  placed  in  the 
file  of  paid  bills.  The  amount  of  cash  received  is  entered 
in  the  cash  book,  which  may  be  of  any  shape  and  ruling 
suitable  to  the  kind  and  extent  of  the  business,  the  following 
being  the  common  form: 


Dr. 


The  Cash  Book 

Cash  Cash 


Cr. 


1916 

Feb.  13 

To  Balance,  forward 

317 

96 

Feb. 13 

By    Expense,    Clerk 

14 

To    Wm.    Smith  on 

hire 

24 

17 

acct. 

50 

00 

14 

By     Mdse     (Thom- 

15 

To  John  Jones  in  full 

26 

35 

son's  bill) 

15 

00 



— 

15 

By  W.  Robinson  & 

394 

31 

Sons 

By  Balance 

217 
137 

24 
90 

137 

90 

394 

31 

Feb. 16 

To  Balance 

The  receipts  and  payments  of  cash  are  usually  kept  on 
opposite  pages  of  the  book,  the  Dr.  side  (receipts)  always 
being  the  left-hand  page  and  the  Cr.  (payments)  the  right- 
hand  page;  corresponding  to  the  Dr.  and  Cr.  side  of  a 
ledger  page.  The  entry  "By  Balauce,  137.90"  on  the  Cr. 
side  is  usually  made  in  red  ink. 


2 


BOOKKEEPING   AND   COST  ACCOUNTING 


Labor-saving  Methods.  The  difference  between  modern 
bookkeeping  systems  and  old-fashioned  ones  is  not  in  the 
principles,  which  are  as  unchangeable  as  those  of  arithmetic, 
but  in  the  use  of  labor-saving  methods,  such  as  card  ledgers, 
bill  files,  and  other  "short  cuts." 

An  example  in  labor  saving  is  shown  in  the  modern  way  of 
paying  bills  by  checks  sent  by  mail.  Fifty  years  ago  Jones 
would  have  written  a  letter  in  copying  ink  reading  as  follows: 

New  York,  Feb.  14,  1866. 
Messrs.  Thomas  Brown  &  Sons, 
230  Washington  St., 
City. 

Gentlemen: 

I  beg  to  enclose  my  check  No.  1234  on  the  Bank  of  North  America 
for  $26.35  in  payment  of  your  invoices  of  1st  and  3d  inst.  Kindly 
acknowledge  receipt. 

Yours  respectfully, 

John  Jones. 

He  would  make  a  press  copy  of  this  letter  in  a  letter  book, 
make  a  note  of  it  in  the  index,  and  enclose  it  in  an  addressed 
envelope.  On  receiving  the  letter  Thomas  Brown  &  Sons 
would  mail  John  Jones  a  formal  receipt  together,  possibly, 
with  a  courteous  letter  of  thanks,  using  time,  paper,  ink  and 
postage  stamps. 

In  the  year  1916  he  would  receive  his  monthly  bill  in  a 
"window"  envelope,  his  name  and  address  being  printed  by 
an  addressograph  on  a  perforated  coupon  attached  to  the 
bill,  which  is  folded  so  that  the  name  and  address  show 
through  the  transparent  paper  in  the  "window."  Here  is 
one  style  of  coupon : 


SPECIAL   NOTICE 

IF   THIS   BILL   IS   PAID   BY    CHECK    AND    NO    FURTHER   RECEIPT 

REQUIRED  PLEASE  DETACH  THIS  COUPON  AND  MAIL  WITH 

CHECK 

Folio  1794  Date    Feb  1,  1916 

Name      Mrs.  John  Jones 

Address      Montclair  N.  J.  Amount  21.09 

James  McCreery  &  Co.,  5  W.  34th  St.  N.  Y. 

When  a  concern  pays  a  bill  it  is  no  longer  customary  to 
send  a  letter  with  the  check,  requesting  that  a  receipt  be 
returned.  The  check  is  merely  enclosed  with  a  printed  coupon 
attached  to  it,  something  like  the  following: 


The  coupon  may  be  dispensed  with,  and  instead  there  is 
printed  on  the  back  of  the  check,  at  the  top: 

In  Payment  of  Account  as  per  Statement  of 191 . . 

In  some  places  the  labor  of  making  and  mailing  monthly 
checks  is  still  further  shortened.  The  customer  makes  a  list 
of  all  his  monthly  bills,  giving  names  and  addresses  of  the 
creditors,  and  sends  to  his  local  bank  a  single  check  for  the 
total  amount.  The  bank  lumps  together  all  the  amounts 
due  to  each  creditor,  and  sends  each  a  cashier's  check  (or  a 
credit  memorandum  if  the  creditor  is  a  depositor  in  the  same 
bank)  for  the  total  amount  due  him,  thus  acting  as  a  clearing 
house  between  debtors  and  creditors. 

Single-entry  Bookkeeping.  The  system  of  accounts 
described  above  is  called  single  entry.  Personal  accounts 
only  are  kept  in  the  ledger,  and  there  is  only  one  entry  for 
each  transaction.  We  "  charge  "  or  "  debit  "  John  Jones's 
account  when  he  makes  a  purchase  and  credit  it  when  lie  pays 
his  account.  A  creditor,  one  from  whom  we  purchase  goods, 
is  credited  when  we  receive  his  bill  or  statement  of  account, 
and  charged  or  debited  when  we  pay  him.  The  system  is 
rarely  used  by  any  except  very  small  business  concerns, 
because  it  does  not  give  all  the  information  that  the  owner 
wishes  to  know  about  his  business,  such  as  the  amount  of 
merchandise  bought  or  sold  during  any  given  period,  the 
amount  of  bills  or  notes  receivable  or  payable  received,  issued 
or  outstanding,  and  the  amount  of  expenses. 

Double  Entry.  In  double-entry  bookkeeping,  which  is 
in  almost  universal  use,  ledger  accounts  are  kept  not  only 
with  persons,  firms  and  corporations,  but  with  things,  such 
as  cash,  merchandise,  bills  payable,  bills  receivable,  and  with 
interest,  discount  and  expenses  of  various  kinds,  also  with 
the  owner  for  liis  investment  or  net  assets;  and  there  is  a 
profit  and  loss  account  to  show  gains  or  losses.  The  chief 
principle  of  double-entry  bookkeeping  is  that  for  every 
transaction  an  entry  is  made  to  two  or  more  accounts,  and 
that  the  entry  or  entries  made  on  the  debit  side  of  the  ledger 
must  for  every  transaction  be  equal  in  amount  to  the  entry 
or  entries  made  on  the  credit  side.  The  ledger  thus  is  always 
"in  balance,"  provided  all  the  posting  from  the  journal  and 
other  books  has  been  done  and  no  errors  have  been  made; 
that  is,  the  sum  of  all  the  entries  on  the  debit  sides  of  all 
the  accounts  equals  the  sum  of  all  the  entries  on  the  credit 
.  sides.  The  "balances"  or  differences  between  the  debit 
and  credit  sides  of  the  several  accounts,  when  listed  and 
summed  up  in  a  "  trial  balance,"  will  also  be  in  balance; 
that  is,  the  sum  of  the  debit  balances  will  equal  the  sum  of 


The  above  cheek  is  in  payment  of  account  as  shown  below.     Tear  off  at  perforation  before  using  at  bank. 
No  receipt  or  acknowledgment  is  necessary.     If  unsatisfactory  return  all  papers  for  adjustment. 


Date 

Our  No. 

Details  of  Payment  Made  by  This  Re- 
mittance from  Company 

Amount 
of  Charge 

Less 
Discount 

Less 
Freight 

Other 
Deductions 

Net 

II 

2 

53191 

Balance  of  Account 

516 

67 

Detach  this  statement  before  depositing  check. 


BOOKKEEPING 


the  credit  balances  if  the  "  posting  "  has   been    clone    cor- 
rectly. 

The  Jolm  Jones  transactions  shown  on  page  1  in  single 
entry  will  appear  as  follows  in  a  double-entry  ledger: 


(Page  26) 
Dr. 


Merchandise 


Cr. 


Feb.    I 
3 


By  John  Jones 
By  John  Jones 


(Page  6) 
Dr. 


Cash 


17  10 

925 


Cr. 


Feb  IS     To  John  Jones 


(Page  130) 


26  35 

I! 


Dr. 

John  Jones 

Cr.  ■ 

Feb. 
Feb. 

1 

3 

To  Mdse. 
To  Mdse. 

24 
25 

17 
9 

10 
25 

Feb. 15 

By  Cash 

11 

2635 

In  order  to  save  time  and  ink  when  there  are  hundreds  or 
thousands  of  personal  accounts,  the  expressions  "  To  Mdse  " 
and  "  By  Cash  "  are  often  omitted. 

The  Journal.  In  the  above  entries  the  credits  to  merchan- 
dise account  and  the  two  charges  to  John  Jones  were  posted 
from  the  Sales  Book,  and  the  debit  of  Cash  and  the  credit  of 
John  Jones  were  posted  from  the  Cash  Book,  but  it  is  cus- 
tomary in  double-entry  bookkeeping  to  have  another  book 
called  the  Journal,  which  may  be  a  book  of  original  entry 
containing  either  all  of  the  transactions  of  a  business  or  only 
those  which  are  not  entered  in  the  sales  book,  cash  book  or 
other  book,  or  it  may  be  an  intermediate  book  between  the 
books  of  original  entry  and  the  ledger,  in  which  transactions 
are  summarized  or  grouped,  in  order  to  avoid  crowding  the 
ledger  with  unnecessary  detail.  When  all  the  transactions 
are  entered  in  the  Journal  it  is  sometimes  called  the  Day  Book 
or  Blotter.  Entries  in  a  Journal  are  always  made  in  "  journal 
form,"  that  is,  in  Debtor  and  Creditor  style,  but  in  a  Day 
Book  they  may  be  made  in  ordinary  language,  as  below: 

DAY    BOOK 

Tuesday,  February  1,  1916 
Sold  John  Jones  (here  insert  items) 


Thursday,  February  4,  1916 
Sold  John  Jones  (items) 

Tuesday  February  15,  1916 
John  Jones  paid  his  account 


26 


25 


35 


(Page  24) 

JOURNAL 

Tuesday,  February  1,  1916 

Dr. 

Cr 

130 
20 

John  Jones  Dr. 

To  Mdse. 

17 

9 

26 

10 
25 
35 

17 

9 

26 

10 

(Page  25) 

Thursday  February  3,  1916 

130 

20 

To  Mdse. 

25 

(Page  32) 

Tuesday  February  15,  1916 

6 
130 

Cash    Dr. 

To  John  Jones 

35 

These  entries  are  posted  in  the  ledger  as  already  shown. 
As  each  journal  entry  is  "  posted  "  a  figure  showing  the 
page  of  the  ledger  on  which  the  account  appears  Ls  entered 
in  the  first  column  of  the  journal. 

In  actual  bookkeeping  the  expression  "  Dr."  and  "  To  " 
in  the  above  entries  and  Dr.  and  Cr.  at  the  tops  of  the  columns 
are  generally  omitted. 

Except  in  small  businesses  it  is  not  customary  to  make  a 
journal  entry  of  each  separate  transaction,  as  above  shown, 
but  once  a  month  to  make  group  entries  of  transactions  of  a 
similar  kind,  the  original  entries  of  which  are  made  in  other 
books,  as  below: 

Feb.  29 


Sundries 

To  Mdse 

26 

35 

\ 

130 

John  Jones 

175 

Wm.  Smith 

46 

17 

161 

Thos.  Robertson 

X.  The  sum  of  all  the  charges  to  individual 
accounts  is  entered  here  as  a  credit  to 

93 

20 

Merchandise  account. 

Cash                                                    To  Sundries 

X 

130 

To  John  Jones 

26 

35 

175 

To  Wm.  Smith 

30 

00 

161 

To  Thos.  Robertson 
X.  Enter  here  the  sum  of  all  the  cash  receipts 
which  are  credited  to  individuals 

85 

10 

The  word  "  Sundries "  means  the  "  several  accounts 
stated  below." 

In  the  actual  practice  of  large  concerns  both  of  the  above 
entries  would  be  omitted  from  the  journal,  on  account  of 
their  involving  an  unnecessary  amount  of  labor.  The 
charges  to  Jones  and  others  would  be  entered  directly 
from  the  sales  book  and  the  credit  to  Mdse.  would  be  the 
total  of  the  monthly  entries  in  the  sales  book.  So  also 
the  receipts  of  cash  would  be  entered  to  the  credit  of  indi- 
vidual accounts  directly  from  the  cash  book,  and  the  debit 
to  Cash  account  would  be  the  total  cash  receipts  of  the 
month. 

Rules  for  Journalizing.  Certain  rules  for  making  entries 
in  journal  form,  whether  they  are  made  in  the  journal  or  in 
books  of  original  entry  such  as  the  cash  book  or  the  sales 
book,  are  memorized  by  bookkeepers,  and  their  careful  ob- 
servance is  essential  for  correct  work.  Such  rules  are  as  fol- 
lows: 

Rule  1.  When  a  thing  is  received  and  a  thing  is  given 
for  it  at  the  time,  the  thing  received  is  Dr.  to  the  thing 
given. 

Rule  2.  When  a  thing  is  received  and  nothing  is  given  for 
it  at  the  time  the  thing  received  is  Dr.  to  the  party  from  whom 
it  was  obtained. 

Rule  3.  When  a  thing  is  given  and  nothing  is  received  for 
it  at  the  time,  the  party  to  whom  it  is  given  is  Dr.  to  the 
thing  given. 

General  Rule.  The  account  that  receives  value  is  Dr.  to 
the  account  that  gives  or  parts  with  value. 


4 


BOOKKEEPING  AND  COST  ACCOUNTING 


Examples 
Transactions 
Rule  1.  We  buy  Mdse.  and  pay  Cash 

We  sell  Mdse.  and  receive  a 
note. 
Rule  2.  We  receive  Cash  from  John 
Jones. 
We  buy  Mdse.  on  time  from 
Peter  James. 
Rule  3.  We  sell  Mdse.  to  John  Jones 
on  time. 
We    pay    Cash    to    Peter 
James. 


Entries 
Mdse.  Dr.  to  Cash. 
Hills      Receivable     to 

Mdse. 
Cash  Dr.  to  John  Jones 

Mdse.    Dr.    to    Peter 

James. 
John     Jones     Dr.     to 

Mdse. 
Peter    James    Dr.    to 

Cash. 


Loss  and  Gain  Accounts.  While  these  rules  are  sufficient 
for  most  business  transactions,  such  as  purchases  and  sales, 
payments  of  cash  or  issue  of  notes  for  merchandise,  or  to 
settle  open  accounts  and  the  like,  they  are  scarcely  sufficient 
without  the  use  of  some  sort  of  bookkeeping  fiction  for  other 
kinds  of  transactions,  such  as  the  payment  of  taxes,  clerk 
hire,  interest  on  borrowed  money,  the  receipt  of  allowance 
for  defective  goods,  or  for  changes  in  the  value  of  accounts, 
such  as  may  be  caused  by  appreciation  or  depreciation  of 
property,  bankruptcy  of  debtors  or  other  causes.  To  cover 
these  cases  we  have  another  general  rule  to  be  memorized: 

Loss  and  Gain  Account 
Debit  for  Losses         Credit  for  Gains 

Loss  and  Gain  Account,  or  Profit  and  Loss  Account  as  it  is 
commonly  called,  is  an  account  that  represents  all  changes 
in  the  net  assets  of  a  concern  that  are  due  to  gains  or  losses 
of  any  kind.  Such  changes  are  not  always  entered  at  the 
time  they  occur.  An  appreciation  in  the  value  of  land  or  the 
depreciation  in  the  value  of  a  building  or  of  machinery  or 
goods  may  not  appear  in  the  books  until  the  proprietor  of 
the  business  finds  it  convenient  or  advisable  to  make  the 
entry. 

Discount,  Interest,  Taxes,  Insurance,  Commissions,  Adver- 
tising, Clerk  Hire,  Freight  and  Cartage,  Fuel,  Light,  Depre- 
ciation and  similar  expense  accounts  are  branches  or  sub- 
sidiaries of  the  general  Profit  and  Loss  Account,  and  their 
balances  (that  is  the  difference  between  their  debit  and 
credit  columns)  are  transferred  to  Profit  and  Loss  Account  at 
the  end  of  the  year  or  other  time  for  closing  the  books.  Sev- 
eral of  these  accounts,  which  represent  the  general  con- 
standly  recurring  expenses  of  the  business,  are  commonly 
lumped  into  one  account,  called  Expense  Account.  Dis- 
count and  Interest  is  a  single  account  representing  both 
receipts  and  payments  or  allowances  for  discount  or  interest. 
Expense  Account  and  Discount  and  Interest,  and  all  losses 
or  gains  on  any  other  account,  such  as  Merchandise  Account, 
are  closed  into  I  rofit  and  Loss  Account  at  the  end  of  the  year. 

Invoice  Book.  An  Invoice  Book  is  a  book  in  which  all 
purchases  of  goods  and  all  bills  for  expenses  are  recorded. 
In  small  concerns  having  a  limited  amount  of  transactions  in 
each  month  they  may  be  entered  directly  in  the  Journal,  but 
in  larger  concerns  an  invoice  book  of  some  form  is  used, 


and  its  summarized  records  are  entered  monthly  in  the 
Ledger.  It  may  be  either  a  book  similar  to  the  Journal,  all 
entries  being  written  in  it,  or  it  may  be  a  large  bound  book  of 
blank  manila  leaves  in  which  the  bills  are  pasted  monthly 
after  being  sorted  and  arranged  in  alphabetical  order.  A 
vertical  letter  filing  case  may  be  substituted  for  the  book,  the 
bills  being  filed  in  folders  labeled  with  the  names  of  the  cred- 
itors and  arranged  alphabetically. 

Invoice  Ledger  and  Sales  Ledger.  In  order  to  prevent  the 
Ledger  from  being  too  bulky,  when  there  are  a  great  many 
personal  accounts  to  be  kept,  the  personal  accounts  are 
removed  from  it,  putting  the  accounts  of  creditors  in  a  sep- 
arate book,  called  an  Invoice  Register,  Invoice  Ledger, 
Purchase  Book,  or  Accounts  Payable  Book,  and  the  accounts 
of  debtors  or  customers  in  a  Sales  Ledger.  The  monthly  total 
of  the  entries  in  the  Invoice  Book  is  entered  in  the  General 
Ledger  to  the  credit  of  Accounts  Payable,  "  By  Sundries," 
and  this  account  is  debited  "  To  Cash  "  for  the  total  monthly 
cash  payments  of  invoices.  The  monthly  total  of  sales 
shown  in  the  Sales  Book  is  charged  in  the  General  Ledger  to 
the  debit  of  Sales  Account  or  Accounts  Receivable,  "  To 
Sundries,"  and  this  account  is  credited  monthly  with  the  total 
cash  receipts  from  sales. 

Having  thus  described  the  general  principles  of  double- 
entry  bookkeeping  we  will  in  the  next  chapter  illustrate  their 
application  to  an  ordinary  commercial  business. 

The  Trial  Balance.  When  all  the  monthly  entries  have 
been  posted  into  a  double-entry  ledger  from  the  Cash  Book, 
Journal,  Sales  Book,  Invoice  Register  or  other  books,  the 
ledger  will  be  "in  balance"  if  the  entries  have  been  made 
correctly,  for  in  double  entry  the  sum  of  the  debit  items 
entered  must  always  equal  the  sum  of  the  credit  entries.  If 
we  make  a  list  of  all  the  open  accounts  in  a  ledger  and  sum 
up  the  totals  on  the  debit  side  and  on  the  credit  side  of  each 
account  these  two  totals  will  balance,  but  this  is  not  often 
done ;  it  is  sufficient  to  take  the  balance  or  differences  of  the 
two  sides  of  each  account  and  write  them  on  the  Dr.  or  Cr. 
sides  of  the  trial  balance,  according  to  whether  the-  Dr.  or  Cr. 
sides  of  the  account  is  greater.  The  sum  of  the  balances 
on  the  two  sides,  if  no  error  has  been  made,  must  be  equal. 

If  the  ledger  is  found  to  balance,  that  is,  the  trial  balance 
shows  that  the  sum  of  the  Dr.  balances  equals  the  sum  of  the 
Cr.  balances,  it  is  generally  assumed  that  the  ledger  has  been 
properly  posted  and  that  it  represents  the  true  condition  of 
the  accounts.  There  are,  however,  possible  errors  which  the 
trial  balance  does  not  reveal.  They  are:  1,  Failure  to  post  a 
journal  entry,  both  Dr.  and  Cr.  sides.  2,  Posting  an  entry 
to  a  wrong  account.  3,  Making  two  errors  in  posting  or  in 
addition,  or  subtraction,  or  the  transcribing  from  the  ledger 
to  the  trial  balance,  one  of  which  balances  the  other.  As  a 
possible  means  of  finding  an  error  of  this  kind,  several  steps 
may  be  taken. 

1.  Compare  the  balance  of  Cash  in  the  Trial  Balance  with 
that  in  the  Cash  Book. 

2.  Compare  Bills  Receivable  with  the  total  of  notes  receiv- 
able on  hand. 

3.  Compare  Bills  Payable  with  the  balance  shown  in  the 
Bill  Book. 


BOOKKEEPING 


4.  Compare  Accounts  Receivable  with  the  total  balances 
in  the  sales  ledger  or  with  the  total  of  unpaid  accounts  shown 
in  the  carbon  copies  in  the  file  of  customer's  accounts 
unpaid. 

5.  Compare  Accounts  Payable  with  the  total  of  unpaid 
bills  in  the  Invoice  Register  or  with  the  total  of  the  file  of 
unpaid  bills  for  purchases. 

6.  Compare  the  present  month's  trial  balance  with  the  one 
of  the  previous  month  to  see  if  the  figures  of  those  accounts 
in  which  there  have  been  no  transactions  or  entries  during 
the  month  (such  as  Real  Estate,  Office  Furniture,  Capital 
Stock,  Bond  and  Mortgage)  are  unchanged. 

If  the  two  sides  of  the  trial  balance  do  not  agree  there  is  an 
error  somewhere  and  it  must  be  searched  for  until  it  is  found. 
When  the  ledger  has  a  great  number  of  accounts  this  is  often  a 
long  and  tedious  operation.  The  error  may  be  in  the  trial 
balance  itself;  it  may  be  found  by  taking  a  new  trial  balance, 
verifying  the  lead-pencil  footings  of  the  Dr.  and  Cr.  sides  of 
each  account  and  the  difference  between  them,  which  is 
entered  in  the  trial  balance.  If  the  second  trial  balance  shows 
the  same  figures  as  the  first,  then  the  postings  in  the  ledger 
must  be  checked  against  the  figures  in  the  Cash  Book,  Journal 
and  other  books  from  which  the  postings  were  made,  the 
bookkeeper  or  clerk  calling  off  the  figures  from  the  several 
books  while  an  assistant  checks  their  posting  in  a  ledger.  If 
the  error  is  not  found  in  the  posting,  then  the  several  books 
must  be  examined  to  see  if  the  debit  entries  balance  the 
credits.  If  the  error  remains  undiscovered,  the  next  step, 
and  it  is  a  long  one,  is  to  find  if  the  previous  month's  trial 
balance  correctly  represents  the  difference  between  the  lead- 
pencil  footings  of  the  Dr.  and  Cr.  columns  of  the  ledger  when 
the  trial  balance  was  taken,  then  to  post  that  trial  balance 
in  a  new  temporary  ledger  made  on  sheets  of  paper,  then  post 
in  that  ledger  every  entry  of  the  month,  first  verifying  the 
figures  of  the  Dr.  and  Cr.  items  of  each  entry;  then  take  a 
trial  balance  of  the  temporary  ledger  and  compare  it  with  the 
original  trial  balance. 

One  of  the  best  ways  to  lessen  the  trial  balance  difficulty 
is  to  have  as  few  accounts  as  possible  in  the  general  double- 
entry  ledger,  keeping  the  Sales  Ledger  and  the  Purchase 
Ledger  by  single  entry.  The  accounts  of  a  factory  should  be 
kept  in  a  separate  set  of  books  from  those  of  the  general 
offices,  the  whole  of  the  operations  of  the  factory  being  repre- 
sented in  the  general  ledger  by  a  single  Manufacturing  or 
Factory  Operating  Account. 

Perhaps  the  best  of  all  the  ways  is  to  adopt  the  Column 
Ledger  or  Combined  Journal-Ledger  which  is  its  own  trial 
balance.    This  is  fully  described  later. 


of  directing  the  bookkeeper,  and  skilled  in  interpreting  the 
language  of  bookkeeping  and  in  making  reports  and  drawing 
conclusions  from  the  records  in  the  books. 

A  cost  accountant  is  a  man  who  possesses  not  only  the 
general  knowledge  and  skill  of  an  accountant,  but  who  has  in 
addition  the  special  knowledge  and  experience  necessary  to 
originate  and  keep  a  system  of  accounts  which  will  show  in 
gross  and  in  detail  the  costs  of  a  manufacturing  or  other 
industrial  or  financial  operation,  and  to  make  reports  and 
draw  conclusions  from  records  of  costs. 

An  industrial  engineer  is  a  man  capable  of  managing  an 
industrial  enterprise,  and  who  possesses  as  part  of  his  equip- 
ment such  a  knowledge  of  cost  accounting  as  will  enable  him 
to  supervise  and  direct  the  cost  accountant. 

Engineers  need  sound  knowledge  of  the  principles  of  double- 
entry  bookkeeping,  if  for  nothing  else,  to  enable  them  to  exercise 
a  close,  intelligent  and  independent  supervision  of  manufacturing 
costs. — Humphreys. 

Relation  between  the  Accountant  and  the  Efficiency 
Engineer  (C.  E.  Knoeppel  and  Harold  Burt,  Journal 
of  Accountancy,  Vol.  21,  1916,  p.  101): 

The  real  trouble  is  this:  The  accountant  looks  upon  the 
efficiency  movement  as  a  visionary,  radical  and  revolutionary 
thing,  full  of  inconsistencies,  because  it  seems  to  violate  all  the 
principles  of  good  accounting  practice.  The  engineer  views 
accounting  as  a  theoretical  exposition  of  facts  and  figures  which 
are  misleading,  incorrect,  as  well  as  dangerous  to  use,  and  violat- 
ing all  the  rules  of  good  practical  management. 

The  accountant  and  the  engineer  can  get  together  if  each 
will  get  away  from  the  feeling  that  the  other  does  not  know 
what  he  is  talking  about. 

The  accountant  and  the  engineer  should  hold  frequent  con- 
ferences and  each  study  the  work  of  the  other.  Both  should 
recognize  that  the  engineer  is  concerned  with  the  things  that  are 
to  be  accomplished  while  the  accountant  is  concerned  with  things 
that  have  been  accomplished. 

A  slight  modification  of  the  wording  of  the  first  of  the  above 
quotations  would  make  it  more  accurate.  For  "  the  account- 
ant," in  the  first  line,  read  "  some  accountants  of  the  old 
school,"  and  for  "  the  engineer  "  read  "  some  half-educated 
engineers,  who  are  not  versed  in  modern  accounting  practice." 
The  fact  is  that  within  the  last  few  years  industrial  engineers 
and  accountants  (or  a  few  of  them  at  least)  have  got  together, 
and  each  knows  what  the  others  are  talking  about.  In 
many  cases  industrial  engineers  are  accountants  themselves 
and  are  training  other  accountants. 


THE   BOOKKEEPER,  THE   ACCOUNTANT,  AND  THE 
ENGINEER 

A  bookkeeper  is  a  man  skilled  in  the  art  of  keeping  the  books 
of  a  business.  A  good  bookkeeper  is  a  good  penman,  quick  at 
figures,  rapid  and  accurate  in  making  entries,  posting  the 
ledger,  taking  trial  balances  and  the  like. 

An  accountant  is  a  man  versed  in  the  theory  and  practice 
of  accounts,  capable  of  originating  a  bookkeeping  system  and 


The  student  who  wishes  to  learn  more  of  the  details  of 
bookkeeping  than  are  given  in  the  above  highly  condensed 
treatment  is  advised  to  purchase  two  or  three  old  books  on 
the  subject  at  a  second-hand  book  store  and  get  the  views  of 
different  authors  on  the  fundamental  theory,  then  for  a 
great  variety  of  detailed  instruction  and  forms,  with  much 
good  advice,  get  a  recent  edition  of  J.  H.  Goodwin's  Improved 
Bookkeeping  and  Business  Manual,  published  by  Mr.  Good- 
win at  1547  Broadway,  New  York  City. 


CHAPTER  II 
TITLES  AND  DEFINITIONS  OF  ACCOUNTS 


Stock 

When  a  man  is  in  business  for  himself  his  individual 
account,  representing  the  capital  he  has  invested  in  the 
business,  is  commonly  called  "Stock."  It  might  be  called 
"Capital,"  "Owner,"  or  "Proprietor,"  or  the  man's  name 
might  be  used. 

George  Robertson  (Partner's  name) 

When  there  are  partners  each  partner  has  an  account  under 
his  own  name.  The  credit  balance  of  each  partner's  account 
represents  the  amount  of  his  interest  in  the  business. 

Capital  Stock;    Common  Stock;    Preferred  Stock 

In  the  case  of  a  corporation  the  par  value  of  the  stock- 
holders' interests  is  represented  by  an  account  called  Capital 
Stock.  If  there  are  two  kinds  of  stock  there  is  an  account 
for  each.  The  credit  balance  of  Capital  Stock  account  (or 
accounts)  is  the  par  value  of  the  stock  issued  or  outstanding. 
A  Stockholder's  Ledger  (not  a  part  of  the  general  books)  is 
kept  to  show  the  number  of  shares  that  each  stockholder  owns. 
A  stockholder  is  credited  in  it  with  the  number  of  shares  he 
owns  and  charged  with  the  shares  he  parts  with. 

Profit  and  Loss  Account  (Loss  and  Gain) 

To  this  account  are  transferred  all  the  profits  and  losses 
shown  in  the  accounts  representing  business  transactions. 
If  an  account  shows  a  profit  (there  being  a  balance  on  the 
credit  side  of  it  after  the  inventory  balance  has  been  added) 
the  amount  of  that  profit  is  transferred  to  the  credit  of  Profit 
and  Loss  Account  by  a  journal  entry.  If  an  account  shows 
a  loss,  such  as  an  expense  account,  the  amount  of  that  loss  is 
charged  to  Profit  and  Loss. 

Profit  and  Loss  is  Debited  with  Losses 
and  Credited  with  Profits. 


Loss  and  Gain 


Debit  Losses 


Credit  Gains 


An  item  on  the  left  or  debit  side  of  the  ledger  is  an  asset  if  the 
amount  eventually  will  be  received,  is  a  loss  if  the  amount 
eventually  will  not  be  received. 

An  item  on  the  right  or  credit  side  of  the  ledger  is  a  liability  if 
the  amount  will  eventually  have  to  be  paid;  is  a  gain  if  the 
amount  will  eventually  not  have  to  be  paid. — Humphreys. 

There  is  an  apparent  exception  to  the  latter  statement  in 
the  fact  that  Capital  Stock,  Surplus,  Proprietor's  account, 
and  usually  Profit  and  Loss,  are  on  the  credit  side  of  the 
ledger,  and  do  not  "  eventually  have  to  be  paid,"  but  this 
is  not  in  reality  an  exception,  for  the   amounts  of   these 


accounts  represent  the  indebtedness  of  the  business  to  its 
owners,  and  it  will  eventually  have  to  be  paid  to  them  if  the 
assets  are  all  sold  and  the  business  wound  up  or  "  liquidated." 

Surplus;    Dividend 

If  Profit  and  Loss  account,  after  all  the  entries  have  been 
made  in  it  at  the  end  of  a  fiscal  period,  shows  a  credit  balance 
that  is  the  net  profit.  If  it  shows  a  debit  balance  that  is  the 
net  loss. 

In  either  case  the  account  may  be  closed  in  red  ink  To  (or 
By)  Balance,  and  the  balance  brought  down. 

Or  in  case  of  a  business  owned  by  a  single  proprietor  it  may 
be  closed  by  a  journal  entry,  transferring  the  profit  to  the 
credit  side  of  Stock  Account  or  the  loss  to  the  debit  side  of 
that  account. 

In  the  case  of  a  partnership,  the  balance  of  Profit  and  Loss 
Account  is  to  be  subdivided  among  the  several  partners  in 
accordance  with  the  terms  of  the  partnership  agreement,  and  a 
journal  entry  made  transferring  each  partner's  share  of  the 
profit  or  the  loss  to  his  individual  account. 

In  the  case  of  a  stock  company  the  disposition  of  the  bal- 
ance of  Profit  and  Loss  Account  depends  on  the  decision  of 
the  directors.  They  may  decide  to  leave  the  account  open 
and  bring  the  balance  down,  and  this  is  generally  done  when 
the  account  has  a  debit  balance,  showing  a  loss  or  "Deficit" 
on  the  year's  business.  If  there  is  a  gain  the  account  may  be 
charged  through  a  journal  entry,  and  Dividend  Account 
credited,  with  such  portion  of  the  profits  as  it  is  deemed 
advisable  to  distribute  to  the  stockholders,  another  portion 
may  be  transferred  to  one  or  more  Reserve  accounts,  such  as 
Reserve  for  Bad  Debts,  another  portion  to  Surplus  account, 
representing  the  increased  value  of  the  business  over  the  par 
value  of  the  outstanding  Capital  Stock.  When  the  dividends 
are  paid  in  cash,  Dividend  Account  is  charged  and  Cash 
credited. 

Merchandise  Account 

Merchandise  Account  in  ordinary  bookkeeping  is  a  mixed 
account.  We  charge  it  with  the  cost  of  our  purchases  at  the 
invoice  price.  If  we  are  allowed  a  discount  of  2  per  cent  for 
prompt  cash  payment  we  do  not  credit  Mdse.  but  credit  Dis- 
count. If  we  keep  the  merchandise  several  months  before  sell- 
ing it  we  do  not  charge  it  with  storage,  insurance  or  interest 
on  the  investment,  but  let  these  expenses  be  hidden  in  the 
expense  accounts.  If  we  sell  the  goods  we  credit  Mdse. 
account  not  with  the  cost  of  the  goods  sold  but  with  their 
gross  selling  price.  If  we  allow  the  purchaser  a  cash  discount, 
we  do  not  charge  it  against  Mdse.  Acct.  but  against  Discount. 
When  we  take  a  balance  of  Mdse,  Acct,  we  do  not  get  the 


TITLES  AND   DEFINITIONS  OF  ACCOUNTS 


value  of  our  Mdse.  assets,  but  a  figure  which  is  made  up  of 
value  of  the  goods  on  hand  and  of  the  profits  or  losses  on  the 
goods  that  have  been  sold.  In  order  to  separate  the  value 
of  the  goods  on  hand  from  the  profits  or  losses  it  is  necessary 
to  take  an  inventory. 

EXAMPLE 

Buy  $1000  worth  of  goods.  Allowed  2  per  cent  discount 
for  prompt  payment,  $20.  Shall  we  make  the  entry  on  the 
Cr.  side  of  the  Cash  Book,  By  Mdse.  $980,  or  shall  we  make  it 
By  Mdse.  $1000  and  enter  on  the  Dr.  side  To  Discount  $20? 
It  is  customary  to  do  the  latter  on  the  theory  that  we  shall 
probably  have  to  give  a  cash  discount  when  we  sell  the  goods, 
or  that  we  may  have  to  keep  them  for  some  months  before 
selling  them,  costing  us  interest  on  the  investment,  storage 
and  insurance,  so  that  they  will  cost  us  $1000  before  they  are 
sold ;  also  on  the  theory  that  financial  accounts  like  Discount 
and  Interest  should  be  kept  separate  from  Mdse.  account,  in 
order  to  have  the  books  show  how  much  we  gain  or  lose 
by  taking  or  giving  discounts.  Suppose  we  sell  the  goods, 
after  keeping  them  three  months,  for  81100  and  allow  2  per 
cent  discount  for  cash.     The  entries  then  will  be: 

CASH 


Jan.      10 
April     10 

To  Discount 
To  Mdse. 

20 
1100 

Jan.     10 
April   10 

By  Mdse. 
By  Discount 

1000 
22 

MDSE. 

Jan.       10 

To  Cash 

1000 

April  10 

By  Cash 

1100 

DISCOUNT 

April     10 

To  Cash 

22     |   Jan.     10 

By  Cash 

20 

Increase  of  Cash,  $98;  Profit  on  Mdse.,  $100;  Loss  on 
Discount,  $2.  Net  profit  on  the  transaction,  apparently,  $98, 
no  entries  having  been  made  of  the  loss  due  to  expenses,  such 
as  interest  on  the  use  of  the  money,  which  might  have  been 
invested  in  goods  having  a  more  rapid  turnover,  and  storage, 
insurance,  cost  of  handling,  clerical  work,  etc.,  all  of  which 
are  covered  in  the  general  expense  accounts,  which  are  not 
apportioned  to  particular  transactions. 

Trading  Account;  Purchase  Account;  Sales  Account 

On  account  of  the  complex  nature  of  Merchandise  Account 
some  accountants  split  it  up  into  two  or  three  accounts, 
Trading,  Purchase,  and  Sales.  One  author  goes  so  far  as  to 
say  that  Mdse.  Acct.  is  obsolete  and  that  no  first-class  modern 
bookkeeper  would  use  it,  although  perhaps  99  per  cent  of  all 
bookkeepers  do  use  it.  Purchase  Account,  or  Merchandise 
Purchased  is  charged  with  the  cost  of  purchased  goods  and 
credited,  Sales,  or  Trading,  being  charged,  at  the  cost  price, 
for  the  goods  sold,  the  balance  showing  the  cost  of  goods 
remaining  unsold.  Sales,  or  Trading,  is  credited,  Cash  or 
Accounts  Receivable  being  charged,  with  the  selling  price  of 
the  goods  sold.    When  all  three  accounts  are  used  Purchases 


is  charged  with  the  cost  of  goods  purchased,  Sales  is  credited 
with  the  selling  price  of  the  goods  sold,  and  at  the  end  of  the 
fiscal  period  Trading  Account  is  opened,  charged  with  the 
cost  of  the  goods  sold,  Purchases  being  credited,  and  cred- 
ited with  the  total  credit  balance  of  Sales  Account.  When 
these  entries  are  made  the  balance  of  Trading  shows  the 
profit  or  loss  on  the  goods  sold.  Trading  Account  may  also 
be  charged  with  the  balances  of  the  various  expense  accounts 
connected  with  the  handling  of  the  goods,  and  charged  or 
credited  with  discount  and  interest,  and  in  that  case  the  bal- 
ance of  the  account  will  show  the  profit  or  loss  on  the  whole 
trading  business. 

An  example  of  the  use  of  Trading  Account  will  be  found  on 
page  25.  It  is  doubtful  if  the  advantages  claimed  for  this 
method  are  sufficient  to  overcome  the  objections  of  increasing 
the  number  of  accounts  and  the  increased  difficulty  of  taking 
trial  balances. 

Merchandise  Returned;  Sales  Allowances 

These  items  may  be  entered  in  Mdse.  Account  or  in  sep- 
arate accounts  as  may  be  found  most  convenient.  If  we 
return  goods  that  we  have  purchased  and  credited  to  the 
party  from  whom  they  were  purchased,  Mdse.  being  charged, 
we  make  a  counter  entry,  charging  them  back  to  the  party 
and  crediting  Mdse.  If  goods  have  been  returned  to  us 
that  we  have  charged  to  the  party  to  whom  they  were  sent, 
crediting  Mdse.,  we  make  a  counter  entry  crediting  the  party 
and  charging  Mdse.  By  this  method  the  Dr.  side  of  Mdse. 
contains  a  record  not  only  of  the  goods  we  have  purchased 
but  also  of  those  that  have  been  returned  to  us,  and  the  Cr. 
side  includes  both  the  sales  of  goods  and  the  goods  that  we 
have  returned.  Allowances,  rebates,  etc.,  may  also  be 
included  in  Mdse.  Acct. 

EXAMPLE 


Dr. 

Merchandise 

Cr 

To  Jones, 

purchased  from 

By  Jones, 

returned  to  him 

100 

him 

1000 

By  Brown 

sold  him 

500 

To  Brown 

returned  by  him 

200 

By    Jones, 

allowance 

for 

To  Brown 

allowed  him 

50 

defects 

40 

Dr. 


Jones 


Cr. 


To  Mdse.  returned  to  him 
To  Mdse.  allowance  by  him 


By  Mdse.  bought  from  him 


1000 


Dr. 


Brown 


Cr. 


To  Mdse.  sold  him 


By  Mdse.  returned  by  him 
By   Mdse.   rebate   allowed 
him 


200 


50 


Or  the  entries  may  be  made  as  follows: 

Dr.  Merchandise  Purchases 


Cr. 


To  Jones 


1000 


BOOKKEEPING  AND  COST  ACCOUNTING 


Dr. 

Mdse 

Sales 

Cr 

By  Brown 

500 

Dr. 

Mdse.  Returned 

Cr 

To  Brown  * 

200 

By  Jonea 

100 

*  The  entries  in  this  account  appear  to  read  wrongly,  for  Mdse.  was  not 
returned  to  Brown  and  returned  by  Jones,  nor  were  allowances  made  to 
Brown  and  by  Jones,  but  just  the  opposite.  The  Bookkeeper,  however, 
will  read  them  correctly:  Mdse.  returned  Dr.  To  Brown,  for  goods  returned 
by  him,  and  Mdse.  Returned  Cr.  By  Jones,  for  goods  that  we  returned 
to  Jones. 


Dr. 


Allowances 


Cr. 


To  Brown . 

50 

By  Jones 

40 

Dr. 

Jones 

Cr. 

To  Mdse.  Returned 
To  Allowances 

100 
40 

By  Purchases 

1000 

Dr. 

Brown 

Cr 

To  Sales 

500 

By  Merchandise  Returned 
By  Allowances 

200 
50 

Dr.           Trading  Ace 

ount  (entries  at  end  of  year) 

Cr 

Bal.  Mdse.  on  Hand 
Total  Purchases 
Total  Mdse.  Returned 
Total  Allowances 
Profits  on  Mdse. 

Total  Sales 

Total  Mdse.  Returned 
Total  Allowances 
Bal.  Invty.  (red  ink) 

Still  another  method  of  making  these  entries  is  to  have 
Mdse.  Account  ruled  in  columns,  as  below: 


Di 

Merchandise 

Cr. 

Allow- 
ances 

Returns 

Purchases 

Sales 

Returns 

Allow- 
ances 

50 

200 

1000 

Jones 
Brown 

500 

100 

40 

The  Jones  and  Brown  accounts  being  treated  in  the  ordinary 
way.  In  very  large  concerns  having  hundreds  or  thousands 
of  personal  accounts  Mdse.  Account  may  be  kept  as  a  con- 
trolling* account  in  the  private  ledger,  entries  of  totals  of 
Purchases,  Sales,  Returns  and  Allowances  being  made  in  it 
once  a  month,  separate  ledgers  being  kept  for  each  of  these 
subdivisions.  The  monthly  entry  in  the  controlling  account 
might  be  made  in  two  lines,  Accounts  Payable  and  Accounts 
Receivable  taking  the  place  of  Jones  and  Brown  in  the  form 
shown  above.  These  subordinate  ledgers  may  also  be  further 
subdivided  into  departmental  merchandise  ledgers  or  ledgers 

*  The  word  "control"  as  used  by  accountants  does  not  mean 
control  in  the  ordinary  sense,  it  means  rather  to  condense  or  sum- 
marize. An  entry  in  a  controlling  account  is  a  total  of  the  entries 
in  several  subordinate  or  detail  accounts  kept  in  another  book. 


for  different  classes  of  goods,  and  the  general  Mdse.  Account 
in  the  private  ledger  may  likewise  be  subdivided  as  desired. 

The  general  principle  upon  which  these  subdivisions  should 
be  made  is  that  they  shall  furnish  all  the  information  that 
the  management  needs  concerning  the  merchandising  part 
of  the  business,  in  gross,  by  summaries,  or  in  detail,  with  the 
least  possible  duplication  of  entries  or  cost  of  clerical  labor. 

Each  transaction  is  recorded  originally  upon  a  piece  of 
paper,  such  as  an  invoice  of  goods  received,  a  carbon  copy  of  a 
bill  for  goods  sold,  or  a  credit  memorandum.  These  ma)-  be 
sorted  and  filed  every  day  by  departments  or  by  classes  of 
goods  and  alphabetically  by  names  of  debtors  and  creditors, 
and  at  the  end  of  the  month  verified  by  comparing  them  with 
the  monthly  statements  received  from  creditors  or  sent  out 
to  debtors.  These  statements  then  become  original  records 
for  permanent  filing  and  their  totals  are  transcribed  to  the 
Invoice  Register  or  Purchase  Ledger  or  Departmental  or 
Class  Ledgers  as  the  kind  and  extent  of  the  business  may 
require,  and  to  Sales  Registers  or  Ledgers.  These  books 
should  have  as  many  columns  as  may  be  needed  to  show  kinds 
of  goods,  discounts,  returns  and  allowances,  and  it  is  only  the 
totals  of  these  columns  that  need  to  be  posted  in  the  con- 
densed private  ledger. 

Accounts  Receivable ;  Accounts  Payable 

In  old-fashioned  double-entry  bookkeeping,  with  a  single 
ledger,  these  accounts  were  unknown.  The  personal  account 
of  each  debtor  and  creditor  was  entered  under  his  own  name. 
There  were,  however,  accounts  called  Sundry  Debtors  and 
Sundry  Creditors,  which  were  used  to  keep  in  one  place  entries 
with  such  debtors  and  creditors  as  were  likely  to  have  only 
one  or  two  transactions  with  us  in  a  year.  When  entries 
were  made  in  them  the  man's  name  was  written  on  the  line  in 
either  the  Dr.  or  Cr.  side,  whichever  was  needed  for  the  first 
transaction  with  him,  a  sale  or  a  purchase. 

EXAMPLE 


Di 

Sundry  Debtors 

Cr. 

Jan.  10 
Feb.    17 

J.  Smith 
R.  Johnson 

17    15 
26.40 

Mar.  10 

Cash 

17.  15 

Sundry  Creditors 

Feb.    15 

To  Cash 

46.50         Jan.  15 
Feb.  12 

M.  L.  Ewen 
P.  J.  Franklin 

46  50 
57.10 

In  modern  bookkeeping,  purchases,  except  cash  purchases, 
are  entered  in  an  Invoice  Register  or  Purchase  Ledger,  and 
the  monthly  total  is  credited  to  Accounts  Payable  in  the 
general  ledger,  charging  the  footings  of  the  columns  headed 
Mdse.,  Expense,  Supplies,  etc.,  to  these  accounts.  The 
monthly  total  of  sales,  except  cash  sales,  is  charged  "Accounts 
Receivable  to  Mdse."  in  the  General  Ledger,  the  charges 
against  the  individual  debtors  being  made  in  the  Sales 
Register  or  Sales  Ledger.  The  Dr.  balance  of  Accounts 
Receivable  should  equal  the  sum  of  the  Dr.  balances  of  the 


TITLES  AND  DEFINITIONS  OF  ACCOUNTS 


individual  accounts  in  the  Sales  Ledger.  The  Cr.  balance  of 
Accounts  Payable  should  equal  the  total  amount  that  we 
owe  on  individual  accounts  in  the  Purchase  Ledger. 

Bills  (or  Notes)  Receivable 

Notes,  Bills  of  Exchange,  or  Acceptances  (accepted  time 
drafts)  in  our  possession  and  payable  to  us,  are  called  Bills 
Receivable  (or  Notes  Receivable).  They  are  usually  entered 
in  the  order  of  their  receipt  (or  alphabetically  if  numerous)  in 
a  Bill  Book. 


Transactions 


(I)  Wo  sell  Mdse.,  $1000  to 
Jones  on  60  day  credit  and 
and  take  his  note  due  60 
days  hence  in  settlement. 


(2)  Having  sold  Smith  $2000 
Mdse.  and  charged  his  ac- 
count with  it,  we  take  his 
interest-bearing  note  in 
settlement. 


(3)  Instead  of  an  interest-bear- 
ing note  Smith  gives  us  a 
3-months'  note  for  the  ac- 
count including  interest 


(4)  Note  (I)  is  renewed  at  the 
end  of  60  days,  we  received 
a  new  note  for  the  same 
amount  and  a  $10  check 
for  interest. 


(5)  Instead  of  (4)  Jones  pays 
$400  cash  on  account  and 
$  1 0  interest  and  gives  us 
a  new  note  for  $600 


(6)  We  discount  at.  Bank  Note 
(2)  after  it  has  run  two 
months.  The  Bank  credits 
us  $2020 


(7)  Note  (3)  is  discounted  30 
days  before  it  is  due.  The 
bank  credits  us  $2020 


(8)  We  draw  on  Brown  at  30 
days  for  the  balance  of  his 
account,  $1000  plus  $15 
interest  which  will  then  be 
due,  and  he  returns  the  draft 
"Accepted." 


Journal  or  Cash  Book  Entrtk 


Bills  Rec. 


1000 


To  Mdse. 


1000 


Bills  Rec. 


2000 


To  Smith 


2000 


Bills  Rec. 


To  Smith         2000 
To  Interest  30 


Cash  10         To  Interest  10 

No  Journal  entry  is  needed.  The  new 
note  is  entered  on  the  Bill  Book,  and  the 
entry  of  the  old  note  is  marked  "re- 
newed." 


Cash 


410 


To  Bills  Rec.     400 

To  Interest  10 

In  the  Bill  Book  the  entry  of  the  old  note 

is  marked  "Pd.  $400   on  a/c.     New  note 

for  $600." 


Cash 


2020         To  Bills  Rec.  2000 
To  Interest  20 


Cash 
Interest 


2020 
10 


To  Bills  Rec.  2030 


Bills  Rec. 


1015 


To  Accts.  Rec. 

(Brown)  1000 

To  Interest  15 


Bills  (or  Notes)  Payable 


Transactions 


(9)  We  buy  Mdse.  $1000  on  60 
days  credit,  and  give  a  60- 
day  note  in  payment 


(10)  We  owe  Johnson  $2000 
and  give  him  an  interest- 
bearing  note 


(11)  Instead  of  (10)  we  give  3- 
months  Note  with  $30  in- 
terest added. 


Journal  or  Cash  Book  Entries 


Mdse. 


1000        To  Bills  Payable 

1000 


Accts.  Payable 
(Johnson)        2000 


To  Bills  Payable 

2000 


Accts.  Payable 


Interest 


2000 
30 


To  Bills  Payable 

2030 


Transactions 

Journal  or  Cash 

Book  Entries 

(12) 

The    bank    discounts    our 

Cash  Dr.             1000 

To  Bills  Payable 

own  note  for  $1000,  credit- 

Cash Cr.                  10 

1000 

ing  us  $990 

By  Interest            10 

(Entry  on  both  sides 

of  cash  book) 

(13) 

We  renew  note  (II)  giving 

Cash  Cr. 

By  Interest            30 

a  new  3-mog.  note    and  a 

The  new  note  is  entered  in  the  Bill  Book 

check  for  $30  interest 

and  the  entry  of  the  old  note  is  marked 

"  Renewed." 

(14) 

We  accept  Simpson's  time 

Accts.   Pay.    (Simp- 

To Bills  Pay.     1010 

draft  on  us  in  payment  of 

son)                    1000 

account  due  him  $1000  and 

Interest                    10 

$10  interest 

(15) 

We  pay   note   (10)    which 

Bills  Payable     2000 

To  Cash             2020 

has     2     months'     interest 

Interest                   20 

accrued 

(Entry  on  Cr.  side  of  Cash  Book) 

By  Bills  Pay.      2000 

By  Interest           20) 

If  each  one  of  the  above  entries  represented  a  separate 
transaction  the  Cash  Book  entries  would  be  as  follows: 


Dr. 


Cash 


Cr. 


(4) 

To  Interest 

10 

(12) 

By  Interest 

10 

(5) 

To  Bills  Rec. 

400 

(13) 

By  Interest 

30 

To  Interest 

10 

(15) 

By  Bills  Pay. 

2000 

(6) 

To  Bills  Rec. 
To  Interest 

2000 
20 

(15) 

By  Interest 

20 

(7) 

To  Bills  Rec. 

2020 

(12) 

To  Bills  Pay. 

1000 

The  Bill  Book  entries  would  be  as  below: 

Bills  Receivable 


Dr. 

Acct. 

Cr. 

Acct. 

Cr. 
Int. 

Total 

Dr. 

Acct. 

Dr. 
Int. 

(1) 
(2) 
(3) 
(8) 

Mdse. 
Smith 
Smith 
Brown 

1000 
2000 
2000 
1000 

30 

15 

1000 
2000 
2030 
1015 

(5) 
(6) 
(7) 

Cash          400 
Cash       2000 
Cash       2020 

10 

Bills  Payable 


Dr. 

Dr. 

Cr. 

Dr. 

Acct. 

Acct. 

Int. 

B.Paj. 

(15) 

Cash 

2000 

(9) 

By  Mdse. 

1000 

1000 

(10) 

By  Johnson 

2000 

2000 

(II) 

By  Johnson 

2000 

30 

2030 

(12) 

By  Cash 

1000 

1000 

(14) 

By  Simpson 

1000 

10 

1010 

The  Bill  Book  usually  contains  numerous  columns  for 
Date  of  Note,  Drawer,  Endorser,  Amount,  when  Payable, 
Accts.  Credited  (or  Debited)  and  Remarks. 

Interest  Account  in  the  General  Ledger,  posted  monthly 
from  the  footings  of  the  Interest  Columns  in  the  Cash  Book 
and  Bill  Book  would  show  the  following: 

Dr.  Interest  Cr. 


Cash 
Bills  Rec. 
Bills  Pay. 


40 
45 


85 


10 


BOOKKEEPING  AND  COST  ACCOUNTING 


Balancing  Bills  Receivable  and  Payable. 
Interest  Account 

It  is  customary  to  enter  all  bills  receivable  and  bills  pay- 
able at  their  face  value,  whether  this  value  includes  interest 
or  not,  and  on  balancing  the  books  at  the  end  of  the  year  to 
bring  down  the  balances  of  notes  unpaid  at  their  face  values. 
It  is  also  customary  to  make  entries  charging  or  crediting 
interest  when  interest  is  added  on  the  note  at  the  time  the 
note  is  drawn,  but  when  the  note  is  interest-bearing  to  make 
the  interest  charge  or  credit  only  when  the  interest  is  paid. 
At  the  end  of  the  year,  when  interest  account  is  balanced,  if 
there  is  a  Dr.  balance  it  is  charged,  and  if  there  is  a  Cr. 
balance  it  is  credited  to  Profit  and  Loss.  There  is  a  certain 
inaccuracy  in  this  method,  since  at  the  time  of  balancing  the 
notes  may  be  worth  something  more  or  less  than  their  face 
values,  depending  on  whether  the  notes  are  interest-bearing 
and  have  interest  accrued  on  them  but  not  entered,  or  whether 
interest  to  a  future  date  has  been  added  in  the  face  value  of 
the  note  but  is  not  yet  accrued.  Also  Interest  Account  may 
not  show  the  true  profit  or  loss,  for  there  may  be  interest 
accrued  but  not  entered  or  entered  but  not  accrued.  To 
correct  these  inaccuracies  by  Journal  entries  to  an  Interest 
Adjustment  Account,  or  to  such  accounts  as  Accrued  Interest 
Payable,  Accrued  Interest  Receivable,  Interest  not  Accrued, 
etc.,  introduces  a  complexity  in  the  bookkeeping  that  is 
usually  considered  to  be  more  trouble  than  it  is  worth.  It  is 
better  to  let  the  inaccuracy  correct  itself  as  it  does  when  the 
notes  are  paid,  and  to  make  a  memorandum  of  it,  if  thought 
desirable,  on  the  balance  sheet. 

Suppose  that  on  December  1st  White  and  Black  each  owes 
us  $2000  and  that  we  owe  Gray  and  Green  each  $1000. 
White  gives  us  a  three-months'  note,  including  interest,  for 
$2030,  and  Black  gives  us  an  interest-bearing  note  for  $2000. 
We  give  Gray  a  three-months'  note  for  $1015,  and  Green  a 
demand  note,  interest-bearing,  for  $1000.  The  Ledger 
entries  are: 

Bills  Receivable 


Dec.    I 


To  White 
To  Interest 
To  Black 


2000 
30 


2030 
2000 


4030 


Bills  Payable 


Dec.    1 


By  Gray  1000 
By  Interest  15 
By  Green 


1015 
1000 


2015 


Interest 


Dec.    I 


To  Bills  Pay.  (Gray) 


By  Bills  Rec.  (White) 


30 


On  balancing  the  books  we  find  that  we  own  Bills  Rec. 
$4030,  that  we  owe  Bills  Pay.  $2015,  and  that  Interest  shows 
a  profit  of  $15.    The  actual  present  worth  of  White's  note, 


however,  is  only  $2010,  $20  out  of  the  $30  interest  not  having 
yet  accrued,  and  the  present  worth  of  Black's  note  is  also 
$2010,  $10  having  accrued  on  it,  making  the  two  notes  worth 
$4020  instead  of  $4030.  Our  present  liability  on  Gray's  and 
Green's  note  is  $1005  each,  or  $2010  for  the  two,  instead  of 
$2015.  We  have  earned  $10  interest  on  White's  note  and 
$10  on  Black's,  a  total  of  $20,  instead  of  $30,  and  $5  each  has 
accrued  on  our  notes  to  Gray  and  Green,  a  total  of  $10  instead 
of  $15.  Net  profit  on  interest  account  $10  instead  of  $15. 
Rather  than  make  a  lot  of  adjustment  entries  in  the  journal 
and  ledger,  involving  the  opening  of  one  or  more  new  ledger 
accounts,  to  reconcile  the  book  values  with  the  present  values 
of  Bills  Receivable  and  Bills  Payable,  and  to  show  the  exact 
profit  on  Interest  Account,  it  is  better  to  let  the  balances 
appear  as  they  are  in  the  accounts,  and  to  put  a  footnote  in 
the  Balance  Sheet  showing  the  present  values  and  the  actual 
profit.  A  footnote  should  also  show  our  contingent  liability 
on  notes  that  we  have  endorsed,  and  a  statement  of  any  Bills 
Receivable  of  which  there  is  a  doubt  as  to  their  being  paid. 

I 
Suspense  Account 

If  there  are  Bills  Receivable,  or  Accounts  Receivable,  of 
which  there  is  a  serious  doubt  of  their  being  collectible,  they 
may  be  taken  out  of  their  respective  accounts  and  charged 
to  Suspense  account  until  they  are  either  paid  or  found  to  be 
of  no  value,  in  which  latter  case  Suspense  acct.  is  credited 
and  Profit  and  Loss  charged  with  them. 

Various  Property  Accounts 

All  the  property  that  a  concern  possesses  may  be  subdivided 
in  the  bookkeeping  system  into  as  few  or  as  many  accounts  as 
the  owner  may  deem  desirable.  The  goods  he  buys  and  sells 
may  all  be  lumped  into  a  single  merchandise  account,  sub- 
divided into  Merchandise  Purchases,  Merchandise  Expense, 
Merchandise  Sales,  Trading  ACct.,  etc.,  or  into  classes  of 
goods,  as  Mdse.  Dept.  A,  Dept.  B,  or  Wheat,  Corn,  Oats,  etc. 
His  factory  property  may  be  handled  in  one  account,  Factory, 
or  divided  into  Land,  Building,  Machinery,  Power  Plant,  etc. 
Store  equipment  may  be  divided  into  Store  Fixtures,  Office 
Fixtures,  and  other  accounts. 

In  making  up  a  scheme  for  subdivision  of  the  property 
accounts  the  owner  should  ask  himself  the  following  ques- 
tions: What  do  I  wish  to  have  a  dollar-and-cent  record  of  in 
regard  to  my  property  and  the  various  parts  into  which  it 
may  be  divided.  Do  I  wish  this  record  in  gross  or  in  greater 
or  less  detail?  If  I  wish  it  in  great  detail,  is  it  necessary  to 
get  it  all  into  the  shape  of  double-entry  journal  and  ledger 
accounts?  Should  it  all  be  in  one  ledger  or  in  several  ledgers? 
Will  it  not  be  well  to  have  a  private  double-entry  ledger  with 
only  a  few  controlling  accounts,  covering  the  business  as  a 
whole,  and  to  have  separate  books  or  filing  cabinets  containing 
the  details?  What  statistical  reports,  weekly,  monthly  or 
annual  do  I  need?  Can  a  statistical  system  be  devised  which 
will  get  the  information  directly  from  original  documents,  or 
must  it  all  be  got  from  the  ledger? 

Whatever  system  be  devised  for  the  subdivision  of  the 
accounts  there  will  necessarily  be  a  double-entry  ledger  to 


TITLES  AND   DEFINITIONS  OF  ACCOUNTS 


11 


cover  the  whole  business,  and  there  may  be  subordinate 
ledgers  for  details. 

Balancing  Property  Accounts 

In  all  ledger  accounts  representing  property  the  method  of 
keeping  the  account  is  the  same,  viz.: 

1.  On  opening  the  account  enter  the  inventory  or  appraisal 
value  of  the  property  represented  by  the  account. 

2.  Debit  the  account  with  the  value  of  all  additions  to  the 
property,  whether  by  work  done  on  it,  or  by  purchases  for  it; 
and  with  all  expenses  incurred  on  account  of  it  which  increase 
its  value. 

3.  Credit  it  with  all  values  returned  by  the  property 
whether  by  sale  or  by  transfer  to  other  branches  of  the  whole 
property. 

4.  At  the  end  of  the  fiscal  period  have  an  inventory  or 
appraisal  of  the  property  made,  and  enter  the  value,  in  red 
ink,  on  the  credit  side  of  the  account  By  Balance  (Invty.) 


5.  Add  up  both  sides  of  the  account  and  find  the  differ- 
ence. If  the  Cr.  side  is  the  larger  there  is  a  profit,  if  the  Dr. 
side  is  the  larger  there  is  a  loss.  Enter  the  profit  or  loss  on  a 
memorandum  of  profits  and  losses  which  is  to  be  used  in 
making  a  journal  entry. 

6.  When  all  the  property  accounts  have  had  their  profits 
or  losses  determined  in  this  way,  two  journal  entries  are  made, 
viz.: 


Sundries 


To  Profit  and  Loss 


For  profits  on  the  following  accounts. 
(Here  enter  the  accounts  with  the  several  amounts  ) 
Profit  and  Loss  To  Sundries 

For  Losses  on  the  following  accounts. 

7.  Post  these  journal  entries  to  the  several  accounts  in  the 
ledger. 

8.  The  two  sides  of  each  property  account  will  now  be 
equal.  Rule  the  account,  enter  the  total  on  both  sides,  and 
bring  down  the  balance,  entering  on  the  Dr.  side  To  Balance 
(Invty.)  $ 

Investments  in  Bonds  and  Stocks 

If  we  invest  any  portion  of  our  capital  in  bonds  or  stocks 
either  because  we  have  no  immediate  need  of  it  in  our  active 
business,  or  because  we  wish  to  have  some  of  our  capital 
available  for  quick  turning  into  cash  in  case  of  an  emergency, 
the  accounts  of  such  investments  are  kept  in  the  same  manner 
as  those  of  any  other  property  accounts.  Debit  at  cost  what 
we  receive,  credit  at  the  selling  price  what  we  part  with  or 
sell.  At  the  close  of  the  fiscal  period,  or  at  any  other  con- 
venient time,  take  an  inventory,  credit  Profit  and  Loss 
with  gains,  charge  it  with  losses.  If  we  borrow  money,  giving 
a  note  with  stocks  or  bonds  as  collateral,  Cash  and  Interest 
are  debited  and  Bills  Payable  credited,  no  entry  being  made 
to  Stocks  and  Bonds  account,  but  in  the  list  of  stocks  and 
bonds  mark  the  ones  used  "Deposited  as  Collateral." 


Mortgage  or  Bonded  Indebtedness 

If  on  beginning  business  we  have  a  bond  or  mortgage  lia- 
bility, it  is  entered  on  the  Cr.  side  of  the  Bond  and  Mortgage 
Account,  and  if  we  give  a  bond  for  cash  or  settlement  of  some 
account,  Cash  (or  other  account)  is  debited  and  Bond  and 
Mortgage  credited.  When  we  pay  cash  in  full  or  on  account 
of  bonded  indebtedness,  Bond  and  Mortgage  is  debited  and 
Cash  credited. 

Expense  Accounts 

All  expenditures  except  those  for  merchandise  or  other 
property  are  charged  either  to  Expense  account  or  to  one  or 
more  of  the  several  accounts  into  which  it  may  be  sub- 
divided. Some  of  these  are  Rent,  Insurance,  Taxes,  Repairs, 
Salaries,  Freight  and  Express,  Postage,  Cleaning,  Fuel,  Light, 
Heat,  Power,  Salesmen's  Expense,  Stationery,  Advertising, 
Traveling  Expense,  Charitable  Subscriptions,  Accidents, 
Legal  Expense.  In  manufacturing  concerns  Factory  Expense 
may  be  subdivided  into  a  hundred  or  more  subordinate  ac- 
counts. To  keep  all  these  accounts  in  the  usual  form  of 
double-entry  ledger  involves  an  intolerable  amount  of  clerical 
work,  therefore,  many  kinds  of  "short-cuts"  have  been 
designed  by  which  all  the  necessary  information  concerning 
the  details  of  the  various  expenditures  may  be  obtained  with 
a  minimum  expenditure  of  time  and  labor.  Some  of  these 
are  described  elsewhere  in  this  work. 

Expense  account  (or  any  subdivision  of  the  account)  is 
charged  with  expenditures,  Cash,  Petty  Cash,  Accounts  Re- 
ceivable or  other  account  being  credited.  In  balancing  the 
books  at  the  end  of  the  year  Profit  and  Loss  is  debited  and  the 
expense  account  credited  with  the  Dr.  balance  of  the  account, 
except  that  when  any  part  of  expense  can  be  considered  as 
an  asset,  such  as  unexpired  taxes  or  insurance,  or  advertising 
paid  for  this  year  but  belonging  chiefly  to  next  year's  busi- 
ness, or  the  cost  of  a  catalogue  which  will  be  useful  for  years 
to  come,  the  amount  that  is  estimated  to  be  an  asset  is  inven- 
toried and  brought  down  as  a  balance. 

Advance  Payments  and  Accrued  Expenses.  Insurance  is 
usually  paid  in  advance,  sometimes  for  a  year,  sometimes 
for  three  years.  The  entry  is  Insurance  Dr.  to  Cash  (or,  in 
the  Cash  Book,  Cash  Cr.  By  Insurance),  the  insurance  being 
an  expense.  When  the  books  are  balanced  at  the  end  of  a 
fiscal  period,  so  much  of  the  insurance  as  has  not  expired  is 
an  advance  payment  for  a  future  expense,  and  is,  therefore, 
not  an  expense  of  the  period  but  an  asset.  It  may  be  closed 
in  the  books  into  an  account  called  Advanced  Expenses,  and 
show  in  the  Balance  Sheet  as  an  asset,  but  it  is  just  as  well, 
and  less  troublesome  not  to  open  this  new  account,  but  to  let 
Insurance  Account  remain  open,  crediting  it  and  charging 
Expense  Account  with  the  amount  of  the  insurance  that  has 
expired,  and  leaving  the  balance  to  Insurance  Account,  rep- 
resenting the  amount  paid  in  advance.  In  the  case  of  insur- 
ance paid  on  factory  buildings,  equipment  and  stores,  the 
amount  paid  is  charged  on  the  general  books  to  Insurance, 
and  once  a  month  the  account  is  credited,  Factory  Operating 
Account  being  charged  with  the  monthly  proportion,  or  one- 
twelfth  of  a  year's  insurance. 

Taxes  are  usually  paid  at  some  other  time  in  the  year  than 


12 


BOOKKEEPING  AND  COST  ACCOUNTING 


the  date  of  closing  the  books.  If  the  books  are  closed  on 
June  30th  and  December  31st,  and  the  taxes  are  paid  on 
October  1st  for  the  year  ending  December  31st,  then  the 
June  balance  sheet  should  show  on  the  Dr.  side  of  Accrued 
Taxes  one-half  of  a  year's  taxes,  the  amount  of  an  expense 
or  loss  that  has  accrued  but  has  not  been  paid. 

Advanced  payments  not  belonging  to  the  expense  of  the 
current  period,  but  to  the  next  fiscal  period,  or  to  other  future 
periods,  are  also  known  as  Deferred  Charges. 

Consignment  Accounts 

When  we  ship  goods  to  a  branch  store,  to  an  agent  or  to  a 
commission  house  to  be  sold  for  us  we  open  a  Consignment 
Account,  also  called  "Shipping"  or  "Adventure"  account, 
charging  it  with  the  goods  at  our  cost  figures,  and  also  with 
any  expenditures  we  may  make  on  account  of  the  consign- 
ment, such  as  freight,  insurance,  etc.  The  consignee  from 
time  to  time  sends  us  an  "Account  Current"  or  "Account 
Sales"  charging  us  with  any  expenditures  he  may  have  made 
on  account  of  the  consignment,  such  as  drayage,  storage, 
repacking,  etc.,  and  also  with  his  commission  on  the  sales  he 
has  made ;  and  crediting  us  with  any  advances  we  may  have 
made  him  for  his  expenses  and  with  any  money  he  has  received 
on  account  of  the  goods  he  has  sold.  The  account  current 
contains  also  a  statement  of  the  goods  sold  and  an  inventory 
of  the  goods  remaining  on  hand.  On  receipt  of  the  account 
current  we  make  the  proper  entries  to  the  Consignment 
Account,  charging  it  and  crediting  the  agent,  if  we  keep  a 
personal  account  with  him,  for  his  disbursements,  crediting 
it  and  charging  him  for  his  receipts  if  he  has  not  paid  them 
over  to  us.  When  they  are  paid  we  credit  him  and  charge 
Cash.  When  the  goods  are  all  sold  and  a  final  account  cur- 
rent rendered  the  consignment  account  is  balanced  and  Profit 
and  Loss  is  credited  with  the  profit  or  charged  with  the  loss  on 
the  consignment.  If  at  the  end  of  the  year  any  of  the  goods 
remain  unsold  they  are  inventoried  at  their  present  value  at 
their  present  location,  cost  plus  freight,  etc.,  less  depreciation, 
if  any,  and  this  inventory  value  is  brought  down  as  a  balance 
for  next  year,  the  entry  to  Profit  and  Loss  being  made  as  in 
the  case  of  Mdse.  Account. 

Commission  Business 

When  we  receive  goods  from  another  party  to  be  sold  by 
us  on  commission,  we  receive  with  the  goods  an  invoice  which 
we  file  as  an  inventory  of  goods  received  on  commission. 
We  open  an  account  with  the  consignor,  charging  him  for 
any  payments  we  may  make  on  account  of  the  goods,  such  as 


drayage,  insurance,  labor,  etc.,  also  with  our  commission  on  the 
goods  sold,  and  with  any  remittances  we  may  make  from  col- 
lections we  have  made  from  the  parties  to  whom  we  have  sold 
the  goods.  We  render  to  the  consignor  an  account  sales  or  ac- 
count current,  showing  the  disbursements  and  receipts,  a  state- 
ment of  the  sales  made,  moneys  collected  and  still  due,  inven- 
tory of  goods  on  hand,  and  balance  due  to  or  by  the  consignor. 

An  Account  Current  or  Account  Sales  is  a  formal  itemized 
statement  made  by  the  consignee  to  the  consignor  giving  all 
the  charges  and  credits  entered  on  the  consignment  account, 
and  a  statement  of  the  goods  remaining  unsold. 

Classification  of  Accounts — Accounting  Code.  In  large 
concerns  it  is  customary  for  the  chief  accountant  to  have  a 
book  in  which  all  the  titles  of  the  accounts  are  listed,  usually 
in  alphabetical  order,  together  with  a  description  of  each 
account  and  of  the  kind  of  transactions  that  are  to  be  recorded 
on  its  debit  and  credit  sides.  Copies  of  this  book,  sometimes 
called  the  Accounting  Code,  are  available  for  use  by  the  book- 
keepers, to  enable  them  to  preserve  a  uniform  system  of 
classification  and  method  of  making  the  journal  entries  for 
every  possible  kind  of  transaction. 

SOME   DEFINITIONS 

Capital.     Money  or  wealth  employed  in  any  business. 

Capital,  fixed:  Invested  in  property  in  a  permanent  form 
(lands,  buildings,  machinery). 

Capital,  active  or  working:  Cash,  or  property,  or  assets, 
that  can  easily  be  turned  into  cash,  also  raw  material,  work  in 
progress,  finished  product  in  warehouse. 

Capital  Stock.  The  indebtedness  of  the  business  to  its 
stockholders,  as  represented  by  the  shares  of  stock  issued  to 
the  stockholders,  together  with  the  shares  held  as  "Treasury 
Stock"  for  sale  or  for  issue  in  the  future,  for  which  "Treasury 
Stock"  account  is  debited. 

Capital  stock  appears  on  the  general  ledger  as  a  liability, 
and  it  is,  therefore,  entered  on  the  Cr.  side  of  the  ledger. 

Capital  expenditure,  charges  to  capital.  Charges  to 
revenue,  charges  against  income. 

The  word  "capital"  is  used  in  two  opposite  senses:  1, 
The  assets  of  the  business,  or  net  assets,  entered  on  the  Dr. 
side  of  the  ledger;  2,  the  amount  of  capital  stock,  issued  or 
held  for  future  issue,  entered  on  the  Cr.  side. 

When  money  is  spent  for  a  new  machine  it  may  be  charged 
to  Machinery  Acct.  as  an  asset  of  the  factory,  or  it  may  be 
charged  to  repairs  or  expense,  if  it  is  a  new  machine  replacing 
an  old  one  that  is  worn  out.  In  the  former  case  it  is  called 
by  some  writers  a  charge  to  capital  or  a  capital  expenditure, 
and  in  the  latter  case  a  charge  to  revenue  or  income. 


CHAPTER   III 

THE   EVOLUTION   OF   BOOKKEEPING.     THE   COLUMN   LEDGER 

The  beginning  of  double-entry  bookkeeping  was  the  use  BUls  Receivable 

of  the  Journal  with  its  debit  and  credit  columns,  and  of  the 
Ledger  with  its  debit  and  credit  sides.     Every  transaction      To  Sundries 
was  entered  first  in  the  Journal  and  then  in  the  Ledger.    A 

series  of  transactions  would  appear  in  the  Journal  as  follows: 


Cash 

to  Proprietor 

600 

600 

Mdse. 

to  Jones  (purchase) 

500 

500 

Smith 

to  Mdse.  (sale) 

400 

400 

Sundries 

Jones — in 
Iuterest 

to  Bills  Payable 
payment  of  his  acct. 

500 
10 

510 

Bills  Receivable 

to  Sundries 

to  Smith,  his  a  c.  pd. 

to  Interest  on  note 

by  note 

408 

400 
8 

Sundries 

Cash 

Intrri-r 

to  Bills  Receivable 

Smith's  note  discounted  at  bank 

401 
7 

408 

Bills  Pay 

— pd.  Jones's  note 
To  C  ash 

510 

510 

Cash 

To  Mdse.  Cash  sales 

150 

150 

Expense 

(Payroll) 
To  Cash 

50 

50 

These  entries  would  be  posted  into  the  ledger  as  below: 

Proprietor 


By  Cash 


Cash 

To  Proprietor 
To  Bills  Rec. 
To  Mdse. 

600 

401 
150 

By  Bills  Pay. 
By  Expense 

510 
50 

560 

1151 

Mdse. 


To  Jones 


500 


By  Smith 
By  Cash 


400 
150 


To  Sundries 

408 

By  Sundries 

408 

Bills  Payable 

To  Cash 

510 

By  Sundries 

510 

Interest 

To  Bills  Pay. 
To  Bills  Rec. 

10 
7 

By  Bills  Rec. 

8 

Expense 

To  Cash 

50 

Jones 

To  Bills  Pay. 

500 

By  Mdse. 

500 

Smith 

To  Mdse 

400 

By  Bills  Rec. 

400 

The  Trial  Balance  taken  after  the  above  Entries  are  posted 
would  be  as  follows: 


Dr. 


Trial  Balance 


Cr. 


Cash 

Interest 

Expense 


591 

9 

50 


650 


Proprietor 
Mdse. 


600 
50 


650 


The  first  modification  of  this  system  was  the  taking  of  the 
separate  Cash  transactions  out  of  the  Journal  and  entering 
them  in  a  Cash  book,  the  footings  of  the  two  sides  being 
entered  in  the  Journal  at  the  end  of  the  month — thus: 


Dr. 

Cash  Bool 

Cr. 

To  Prop. 
To  Mdse. 
To  Bills  Rec. 

600 
150 
401 

By  Bills  Pay. 
By  Expensa 

510 
50 

1151 

13 


14 


BOOKKEEPING  AND  COST  ACCOUNTING 


Journal 


Cash 

To  Sundries 

1151 

To  Prop. 

600 

To  Mdse. 

150 

To  Bills  Rec. 

401 

Sundries 

To  Cash 

560 

Bills  Pay. 

510 

Expense 

50 

Interest 

7 

To  Bills  Rec. 

7 

Int.  on 

Smith's  note 

The  Ledger  then  would  show: 


Dr. 

Cash 

Cr. 

To  Sundries 

1151 

By  Sundries 

560 

Bills  Rec. 


Cr. 

Cash  Pd.        Dr.  Acet. 

Cr.  Dis.  and 
Int. 

By  Jones 

495 

500 

5 

check  for  $398,  we  making  him  an  allowance  of  $2.00,  the 
entry  on  the  Dr.  side  of  the  Cash  Book  is 


This  modification  introduced  one  objectionable  feature,  the 
making  of  an  entry  in  two  different  books  when  a  note  was 
discounted,  one  in  the  Cash  Book,  for  the  net  cash  received, 
and  the  other  in  the  Journal,  for  the  interest  charged.  This 
objection  was  avoided  by  making  an  entry  on  the  debit  side 
of  the  Cash  Book  for  the  face  value  of  the  note  and  on  the 
credit  side  for  the  interest;  thus,  Cash  Dr.  to  Bills  Rec.  $408; 
Cr.  by  Interest  $7,  on  the  fiction  that  Cash  received  $408  for 
the  note  and  paid  S7  interest,  instead  of  receiving  the  net  sum 
of  $401  with  which  the  bank  credited  its  customer.  A  sim- 
ilar plan  was  followed  when  discounts  were  allowed  for  prompt 
payment  of  invoices.  If  instead  of  our  giving  Jones  a  note 
for  $500  in  settlement  of  his  account  for  $500,  he  offers  to 
take  $495  for  prompt  cash  and  we  draw  a  check  for  that 
amount,  an  entry  By  Jones  $500  is  made  on  the  credit  side 
of  the  cash  book  and  To  Interest  $5  on  the  debit  side. 

When  the  number  of  discount  and  interest  transactions 
became  large,  an  improvement  was  made  in  the  Cash  Book 
by  adding  a  discount  and  Interest  column  to  each  side,  a 
column  crediting  Discount  and  Interest  account  on  the  Cr. 
side,  and  one  debiting  that  account  on  the  Dr.  side.  Thus, 
in  paying  Jones's  account  of  $500  with  $495  cash  the  entry 
on  the  credit  side  of  the  Cash  Book  is 


The  $500  is  posted  to  the  debit  of  Jones,  balancing  his  account, 
and  the  footing  of  the  column  headed  Cr.  Dis.  &  Int.  is 
credited  to  that  account,  Cash  being  charged. 

In  like  manner  if  Smith  instead  of  giving  us  a  note  for  $408 
in  payment  of  his  account  of  $400  with  interest  gives  us  his 


Cash  Dr. 

Cash 
Received 

Cr.  Acet. 

Dis.  and 
Int.  Dr. 

To  Smith 

398 

400 

2 

In  posting,  Smith's  account  is  credited  $400,  and  the  footing 
of  Dis.  &  Int.  column  is  debited,  Cash  being  credited.  When 
the  Cash  Book  is  journalized  at  the  end  of  the  month,  the 
discounts  being  received  and  allowed  as  above  stated,  the 
entries  are: 


Cash 

To  Sundries 

1155 

To  Prop. 

600 

To  Mdse. 

150 

To  Smith 

-.00 

To  Dis.  &  Int.          (from  Jones,  Cr.  side  of  Cash  Book) 

5 

Sundries 

To  Cash 

552 

Jones 

500 

Expense 

50 

Dis.  4  Int.  (from  Smith,  Dr.  side  of  cash  Bk.) 

2 

Accounts  Receivable.    Accounts  Payable 

The  next  development,  in  the  direction  of  simplifying  the 
general  Ledger,  as  the  number  of  accounts  increases  to  such 
an  extent  as  to  make  the  Ledger  too  bulky  and  the  labor  of 
balancing  it  too  great,  is  to  remove  from  it  the  personal 
accounts  with  debtors  and  creditors,  putting  them  into  a 
Sales  Ledger  or  Accounts  Receivable  Book,  and  into  a  Pur- 
chase Ledger  or  Invoice  Register,  or  Accounts  Payable  Book. 
In  the  general  Ledger  the  accounts  thus  removed  are  repre- 
sented by  two  controlling  accounts,  Accounts  Receivable  or 
Sundry  Debtors  or  Trade  Debtors,  and  Accounts  Payable, 
or  Sundry  Creditors  or  Trade  Creditors.  Two  new  columns 
are  added  to  the  Cash  Book,  one  on  the  Dr.  side  with  the 
heading  Accts.  Rec'l.,  and  the  other  on  the  Cr.  side,  headed 
Accts.  Pay. 

The  Cash  Book  entries  will  then  appear  as  follows: 


Dr. 

Dr. 

Cr. 

Cr. 

Cash 

Cash  Rec. 

Dis.  and 

Acet. 

Sundry 

Int. 

Rec'l. 

Accts. 

To  Prop. 

600 

600 

To  Mdse. 

150 

To  Smith 

398 

2 

400 

Cash 

Cr. 
Cash  Pd. 

Cr. 

Dis.  and 
Int. 

Dr. 
Accts. 
Pay. 

Dr. 
Sundry 
Accts. 

By  Jones 
By  Expense 

495 
50 

5 

500 

50 

Smith's  account  in  the  Sales  Ledger,  which  has  been  debited 
$400  by  posting  from  the  Sales  Book,  is  credited  $400  from 


THE   EVOLUTION   OF   BOOKKEEPING.    THE   COLUMN   LEDGER 


15 


the  Accts.  Receivable  column  in  the  Cash  Book,  and  Jones's 
account  in  the  Purchase  Ledger  which  has  been  credited  $500 
by  posting  from  the  Invoice  Register  is  debited  $500  from 
the  Accts.  Payable,  in  the  Cash  Book. 

In  journalizing  and  posting  Cash  at  the  end  of  the  month, 
Cash  is  made  Dr.  to  Accts.  Receivable,  and  credited  by 
Accts.  Payable  for  the  amounts  of  the  footings  of  the 
columns  so  named. 

If  many  notes  are  received  or  given  two  other  columns  are 
added,  Bills  Receivable  on  the  Dr.  side  and  Bills  Payable  on 
the  Cr.  side. 

The  Column  Cash  Book.  In  this  way  the  Cash  Book 
develops  into  a  Column  Cash  Book  containing  from  six  to 
ten  columns  on  each  side  according  to  the  number  of  accounts 
in  the  General  Ledger  the  entries  to  which  are  numerous 
enough  to  warrant  their  being  grouped  together.  One  col- 
umn on  each  side  will  be  headed  Sundry  Accts.,  to  contain 
entries  for  which  no  place  is  provided  in  the  other  columns. 


Dr. 

Cash 

Cash 
Reed. 

Dis.  & 
Int.  Dr. 

Credit  Accts. 

Name  of  Cr.  Acct. 

Mdse. 

Bills 
Rec. 

Acct. 
Rec. 

Sundry 
Accts. 

Cash 


Cr. 


Cash 
Pd. 

Dis.  & 
Int.  Cr. 

Debit  Accts. 

Nameof  Dr.  Acct. 

Bills 
Pay. 

Accts. 
Pay. 

Mdse. 

Exp. 

Sundry 
Accts. 

- 

When  the  column  Cash  Book  is  used  it  is  not  necessary  to 
journalize  it  at  the  end  of  the  month.  The  column  footings 
may  be  posted  directly  into  the  General  Ledger,  the  few 
entries  in  the  Sundry  columns  being  posted  to  their  proper 


accounts.  Another  development  of  the  Cash  Book  is  the 
provision  of  a  Petty  Cash  Book,  also  provided  with  several 
columns,  to  take  care  of  a  great  number  of  small  items  with 
which  it  is  not  desired  to  cumber  the  Cash  Book.  The 
footings  of  the  columns  of  the  Petty  Cash  Book  may  be 
entered  on  a  line  above  the  footings  in  the  principal  Cash 
Book,  in  the  proper  columns,  or  they  may  lie  posted  sep- 
arately into  the  Ledger  as  may  be  most  convenient. 

The  Invoice  Register  is  also  a  book  of  several  columns,  the 
number  of  them  depending  upon  the  number  of  classes  into 
which  it  is  desired  to  subdivide  the  materials  or  other  things 
or  services  purchased.  For  example,  the  headings  may  read 
Mdse.,  Expense  Supplies,  Expense  Services,  Repairs,  Selling 
Expenses.  The  footings  of  the  several  columns  may  be 
journalized,  crediting  Accounts  Payable  for  the  total,  or  they 
may  be  directly  posted  into  the  Ledger.  The  Sales  Book  or 
Register  of  Charge  Sales  (made  up  from  sales  tickets)  usually 
needs  only  one  or  two  columns,  and  the  journal  entry  in  the 
general  Ledger  is  a  single  one,  Accounts  Payable  Dr.  to  Mdse., 
but  if  it  is  desired  to  subdivide  Mdse.  into  several  classes  this 
may  be  done  by  means  of  different  columns  with  appropriate 
headings.  The  individual  entries  in  the  Sales  Book  are 
posted  to  the  individual  accounts  in  the  Sales  Ledger. 

The  Bill  Book.  When  the  business  involves  the  handling 
of  a  great  number  of  notes  or  Bills  Receivable  and  Bills  Pay- 
able it  is  well  to  have  a  Bill  Book  as  a  book  of  original  entry 
for  recording  these  notes.  Usually  Bills  Receivable  are 
received  only  in  settlement  of  Accounts  Receivable  and 
interest,  and  Bills  Payable  are  given  only  in  settlement  of 
Accounts  Payable  and  interest,  so  that  only  three  columns 
are  needed,  Face  of  Note,  Interest,  and  Dr.  (or  Cr.)  Account, 
but  a  fourth  column  may  be  added  for  the  notes  given  or 
received  on  any  other  account.  Separate  pages,  or  in  large 
businesses  separate  books,  are  used  for  Bills  Receivable  and 
Payable. 

THE  EIGHT-COLUMN  JOURNAL 
The  Journal  is  sometimes  ruled  with  six,  eight  or  ten 
money  columns,  half  on  one  side  and  half  on  the  other,  with  a 
wide  central  column  for  the  description  of  the  transaction; 
and  two  narrow  columns  for  the  entry  of  the  ledger  folio 
after  posting  to  the  ledger.    The  following  is  an  example: 


Dr. 

c-. 

Sundry 
Accts. 

Interest 
&  Disct. 

Accts. 
Rec. 

Mdse. 

L.  F. 

February  28,  1917 

L.  F. 

Mdse. 

Accts. 
Pay. 

Interest 
i  Disct. 

Sundries. 

A/c  Pay 
400 

Bills  Rec 
204 

10 

300 

500 

• 

Mdse.  to  J-  Jones 

T.  Smith  &  Sons.     To  Bills  Pay.     Interest 
W.  Brown.     To  Mdse. 

Bills  Rec.     To  C.  Jackson.     Interest 

40 

300 

500 

4 

Bills  Pay 
410 

A   c  Rec 
200 

The  meaning  of  these  entries  is  (1)  we  bought  Mdse.  from 
Jones  and  credit  him  in  the  Invoice  Register  or  Accounts 
Payable  Book;  the  check  showing  that  the  credit  has  been 
entered.  (2)  We  having  credited  Smith  in  the  Accts.  Pay- 
able Book  for  Mdse.  purchased  $400,  now  give  him  a  note  for 


$410,  including  $10  interest.  We  credit  Bills  Payable  (the 
thing  given)  $410  and  charge  Accts.  Payable  in  the  Sundry- 
Accounts  Column  $400,  posting  the  amount  to  Smith's 
account  in  the  Purchase  Ledger  and  charge  Interest  (it  being 
a  loss)  on  the  Dr.  side  in  the  Interest  column.     (3)  We  sell 


16 


BOOKKEEPING  AND   COST  ACCOUNTING 


Brown  $300  of  Mdse.  on  account,  charging  Accts.  Receivable 
in  Dr.  side  of  the  Journal,  and  posting  the  amount  to  Brown's 
account  in  the  Sales  Ledger.  (4)  Jackson  gives  us  his  note 
$204,  in  payment  of  his  account  $200  and  $4  interest.  We 
charge  Bills  Receivable  (the  thing  received)  $204,  crediting 
Interest  (a  gain)  on  the  credit  side  of  the  Journal,  and  Accts. 
Rec.  in  the  Sundries  Column  on  the  credit  side  $200,  crediting 
Jackson  this  amount  in  the  Sales  Ledger.  The  several  col- 
umns are  footed  and  the  totals  at  the  end  of  the  month  are 
posted  into  the  proper  accounts  in  the  general  ledger.  The 
footings  of  the  sundry  columns  are  subdivided  into  their 
respective  accounts,  thus  in  the  above,  on  the  Dr.  side  $400 
is  posted  to  Accts.  Payable  and  $204  to  Bills  Receivable. 

When  an  account  is  posted  into  the  ledger  the  number  of 
the  ledger  page  is  entered  in  the  journal  in  the  column  L.F. 
(ledger  folio). 

THE   SAFEGUARD   LEDGER 

A  form  of  sales  ledger  known  as  the  Safeguard  Ledger, 
which  is  used  by  many  large  concerns,  is  illustrated  in  Fig.  1 . 


The  size  of  the  page  is  15  Xl2  in.  and  a  double  page  contains 
the  entries  for  six  months.  A  perforated  crease  is  made  in 
the  June  column  on  the  right-hand  page  to  allow  the  folding 
in  of  a  strip  of  the  width  of  the  name  column,  so  as  to  expose 
the  name  column  on  the  left-hand  page  when  the  July  and 
December  entries  are  made.  By  this  means  the  names  have 
to  be  written  only  once  a  year.  There  are  79  numbered 
lines  to  a  page  besides  a  line  for  footings  at  the  bottom.  The 
number  of  lines  allowed  to  an  account  depends  upon  the 
number  of  entries  that  are  expected  to  be  made  in  a  month, 
as  determined  by  inspection  of  the  old  ledger.  The  debit  bal- 
ances from  the  old  ledger  are  entered  as  shown  in  Column  1. 
In  Column  2  are  entered  the  debits,  taken  from  the  Sales 
Book  or  Sales  Tickets,  and  the  credits,  whether  cash,  re- 
turned goods,  or  allowances,  are  entered  in  Column  3. 
After  the  debits  and  credits  for  the  month  have  been 
posted  each  customer's  account  is  balanced  by  adding  the 
amount  of  his  purchases  to  the  old  balance  and  subtracting 
the  amount  of  his  credits.  The  balance  thus  found  is  entered 
in  Column  4. 


2 

(O 

JANUARY 

(2)                              (3) 

(4) 

1 

Designed  by 
Safeguard  Account  Cotnpaay 
Chicago    New  York   Boston 

Names 

Ti-ftna. 

Debit 
Balance 

Data 

[ktvk 

Tenna 

Debits 

Iv.ti' 

Book 

Creiiics 

Debit 
Balance 

Coliimns 
for  February 

Date 

IWk 

Credits 

Traos. 

Page 

Page 

Pag. 

Led. 
A. 



March 

0 

S.  S.  Pierce  Co. 

235 

780 

3-1 

:; 

204 

V    125 

2 

1 

V    500 

- 

! 

Aliril 

0 

l 

t 

21 

245 

V   375 

- 

31 

3 

V    790 

HI 

May 

1 

2 
3 
4 

Boston, 

Mass. 

268 

V       9 

I'm 

2 
3 
4 

509 

67 

5 
6 

(Five  lines  or  any  multi 

>le  " 

Jive  a 

■<■  i 

lov 

edf 

>r  ecu 

h 

5 

6 

7 

account  according  the  t 

roba 

tie  ma 

tin 

um  number 

V 

7 

8 

of  entries  in  a  month) 

3 

8 

9 

s 

9 

10 

John  B.  Stetson  Co. 

236 

407 

63 

IS 

245 

V     25 

- 

V    407 

63 

500 

- 

10 

11 

l 

18 

249 

V     45 

— 

V     70 

- 

ea 

a 

11 

12 

"Philadelphia, 

20 

254 

367 

50 

§ 

») 

12 

13 
14 

Pa. 

21 

260 

132 

:,o 

1 

a 

13 
14 

570 

III) 

i 

3 

u 

o 

3 

15 
16 
17 
18 

18 
79 

(SO  ruled  lines  to  a  page 

numbered 

i  U 

79) 

Totals 

1188 

00 

1079 

m 

1767 

67 

500 

| 

= 

: 

=^== 

== = 

= 

19 

Fig.  1. — -The  Safeguard  Ledger. 


Each  page  is  footed  separately,  and  if  no  error  has  been 
made  in  balancing  the  sum  of  Columns  1  and  2  should  equal 
the  sum  of  Columns  3  and  4.  Instead  of  taking  a  trial  bal- 
ance in  the  old  way  the  footings  of  each  page  are  transferred 
to  a  Proof  Book,  which  contains  four  columns  corresponding 
to  those  of  the  ledger,  and  these  columns  are  footed.  The 
total  of  the  Transferred  Balance  column  shows  the  amount 
outstanding  from  customers  at  the  time  of  transfer  of  the 
accounts  from  the  old  ledger;  the  debit  column  total  shows 
the  charges  to  all  customers  during  the  month,  and  it  should 
equal  the  total  charges  in  the  Sales  Book;   the  credit  total 


should  agree  with  the  total  credits  to  customers  as  shown 
by  the  Cash  book  and  Allowance  or  other  auxiliary  books; 
and  the  debit  balance  total  shows  the  amount  owing  by  cus- 
tomers at  the  end  of  the  month.  Errors  in  posting  are  shown 
by  the  differences  between  the  total  proved  footings  of  the 
columns  and  the  proved  footings  of  the  books  from  which  the 
postings  were  made. 

The  several  advantages  of  this  form  of  ledger  over  the  old 
style  ledger  are  fully  explained  in  a  handsome  illustrated 
circular  issued  by  the  manufacturers,  The  Safeguard  Account 
Co.,  New  York. 


THE  EVOLUTION   OF   BOOKKEEPING.    THE   COLUMN   LEDGER 


17 


THE  COLUMN  LEDGER,  OR  COMBINED  JOURNAL- 
LEDGER 

The  greatest  recent  improvement  in  bookkeeping  systems 
is  the  abandonment  of  the  ordinary  Journal  and  Ledger  and 
the  substitution  for  them  of  the  "Combined  Journal-Ledger," 
or  Column  Ledger.  It  is  merely  a  stage  in  the  evolution 
which  began  with  the  adoption  of  the  Column  Cash  Book  and 
the  Column  Invoice  Register.  It  consists  of  a  single  sheet 
for  each  month's  transactions,  ruled  with  columns  and  hori- 
zontal lines,  with  the  titles  of  the  active  accounts  printed  at 
the  heads  of  the  columns  and  at  the  left  of  the  horizontal 
lines.  Entries  are  made  from  the  books  of  original  entry  by 
simply  transcribing  the  column  footings  of  these  books  into 


the  Ledger.  If  an  entry,  Mdse.  to  Accts.  Payable  83000,  is 
to  be  made  from  the  Invoice  Register,  it  is  done  by  once 
writing  the  amount  in  the  Ledger  column,  Accts.  Pay.  Cr., 
on  the  line  Mdse.  Dr.  Writing  the  figure  once  makes  a 
double  entry,  charging  one  account  and  crediting  another, 
just  as  a  single  entry  on  the  Dr.  side  of  the  Cash  Book  at  the 
same  time  charges  Cash  and  credits  the  Account  for  which  the 
cash  was  received.  To  illustrate  the  Column  Ledger  sys- 
tem of  bookkeeping  an  example  of  handling  a  month's  trans- 
actions, as  shown  in  the  books  of  original  entry,  by  means  of 
the  ordinary  Journal  and  Ledger  and  by  means  of  the  Column 
Ledger  is  given  below.  Other  illustrations  of  the  use  of 
the  Column  Ledger  will  be  found  on  pages  32  and  40. 


Column  Footings  of  Books  of  Original  Entry 


Cash  Book 


Debit  Acct9. 

Credit  Acets. 

Mdse. 

Accts.  Reel. 

Bills  Pay. 

Bills  Rec. 

Exp. 

Int. 

Cash  Dr. 

13.250 

1200 

5000 

4000 

3000 

10 

40 

Credit 

Debit  Acets. 

Sundries. 

Mdse. 

Accts.  Pay. 

Bills  Pay. 

Labor. 

Exp. 

Int. 

Cash  Cr. 

11,910 

Store  Fix. 

30 

200 

6500 

4500 

300 

350 

30 

Sales  Book 


Acct9.  Reel. 


Dr. 


5050 


Mdse. 


Cr. 


5000 


Exp. 


Cr. 


50 


Invoice  Register 

Cr. 

Dr. 

Dr. 

Dr. 

Accts.  Pay. 

3400 

Mdse. 

3000 

Exp. 

300 

Repairs 

100 

Bill  Book 


Bills  Rec. 
Bills  Pay. 


Dr. 
Cr. 


1015 
1520 


Accts.  Reel. 
Accts.  Pay. 


1000 
1500 


Interest  Cr. 
Int.  Dr. 


15 
20 


Pat  Roll 

Cr. 

Cr. 

Dr. 

Dr. 

Labor 
Labor 

450 
Dr. 
70 

Mdse. 

Cr. 

70 

Expense 

400 

Mdse. 

50 

18 


BOOKKEEPING  AND  COST  ACCOUNTING 


In  the  common  system  of  bookkeeping   these  footings 
would  be  journalized  at  the  end  of  the  month  as  follows: 


Cash 

To  Sundries 

13,250 

Mdse. 

1,200 

Accts.  Reel. 

5,000 

Interest 

40 

Bills  Pay. 

4,000 

Bills  Rec. 

3,000 

Expense 

10 

Sundries 

To  Cash 

11,910 

Mdse. 

200 

Store  Fix. 

30 

Aects.  Pay. 

6,500 

Bills  Pay. 

4,500 

Labor 

300 

Expense 

350 

Interest 

30 

Accts.  Receivable 

5,050 

To  Sundries 

To  Mdse. 

5,000 

To  Exp.  (supplies  sold) 

50 

Sundries 

3,400 

To  Accts.  Pay. 

Mdse. 

3.000 

Exp. 

300 

Repairs 

100 

Bills  Receivable 
To  Sundries 
To  Accts.  Reel. 
To  Int. 


Labor 

To  Mdse. 


70 


1,000 
15 


Sundries 

To  Bills  Pay. 

1,520 

Acets.  Pay. 

1,500 

Interest 

20 

Sundries 

To  Labor 

450 

Expense 

400 

Mdse. 

50 

70 


The    Trial    Balance  of   the   Ledger   before    posting  the 
above  Journal  Entries  may  be  as  follows: 


Dr. 

Cr. 

1 

Cash 

1,000 

9 

Proprietor 

10,500 

2 

Bills  Rec. 

4,000 

10 

Profit  &  Loss 

1,000 

3 

Accts.  Rec. 

6,000 

1 1 

Bills  Pay. 

8,000 

4 

Mdse. 

10,000 

12 

Accts.  Pay. 

7,000 

5 

Real  Estate 

5,000 

13 

Labor 

300 

6 

Store  Fix. 

500 

14 

Interest 

7 

Expense 

300 

8 

Repairs 

26,800 

26,800 

After  posting  the  above  Journal   Entries  the  Ledger  will 
appear  as  below: 

(I)     Cash 


Bal. 

Sunds. 


Bal. 

To  Sunds. 


Bal. 

To  Sunds. 


Bal. 


Bal. 
To  Cash 


To  Accts.  Pay 


To  Cash 


To  Cash 
To  Bills  Pay 


1,000 
13,250 


Sunds. 


(2)     Bills  Rec. 


4,000 
1,015 


By  Cash 


(3)  Accts.  Rec. 


6,000 
5,050 


By  Cash 
By  Bills  Rec. 


(4)      Mdse. 


(5)     Real  Estate 


5,000 


(6)     Store  Fixtures 


500 
30 


(7)     Expense 


(8)      Repairs 


100 


(9)     Proprietor 


Bal. 


(10)     Profit  &  Loss 


Bal. 


(II)     Bills  Pay. 


(12)     Accts.  Pay. 


6,500 
1,500 


Bal. 

By  Sund. 


11,910 


3,000 


5,000 
1,000 


Bal. 

10,000 

By  Cash 

1,200 

To  Cash 

200 

By  Accts.  Rec. 

5,000 

Accts.  Pay. 

3,000 

By  Labor 

70 

To  Labor 

50 

Bal. 

300 

By  Cash 

10 

To  Cash 

350 

By  Accts.  Rec. 

50 

To  Accts.  Pay. 

300 

To  Labor 

400 

1,000 


8,000 
4,000 
1,520 


7,000 
3,400 


THE  EVOLUTION   OF  BOOKKEEPING.    THE  COLUMN   LEDGER 


19 


(13) 

Labor 

To  Cash 
To  Mdse. 

300 

70 

Bal. 

By  Sund. 

300 
450 

(14)     Interest 

To  Caah 
Bills  Pay. 

30 
20 

By  Cash 
By  Bills  Rec. 

40 
15 

Profit  &  Loss  To  Sundries 

To  Expense 

Dr.  Bal.  of  Exp.  Acct. 
Less    expense    assets    per 
ventory 

To  Repairs,  Dr.  Bal.  Acct. 


1040 
100 


After  taking  a  trial  balance  of  the  ledger  to  prove  the  cor- 
rectness of  the  posting,  Mdse.  shows  a  Dr.  Balance  of  $6980, 
Expense  a/c  $1290,  Repairs  $100,  and  Interest  has  a  credit 
bal.  of  $5.00.  If  the  Inventory  shows  that  Mdse.  unsold  has 
a  value  of  $8400  and  that  there  are  Expense  Assets  on  hand 
of  a  value  of  $250,  viz.,  Supplies  charged  to  Expense  and  not 
yet  used,  $50,  prepaid  Taxes  $100,  prepaid  Insurance  $100 — 
entries  may  be  made  in  the  Journal  for  the  Profits  and 
Losses  as  follows: 


After  these  entries  are  posted  a  balance  sheet  is  made 
out,  as  follows: 


Sundries              To  Profit  &  Loss 

1425 

Mdse. 

On  hand  as  per  inventory 

8400 

Less  Dr.  Bal.  of  Acct. 

6980 

1420 

5 

Interest,  Cr.  Bal.  of  Acct. 

i 

Cash 

2,340 

9 

Proprietor 

10,500 

2 

Bills  Rec. 

2,015 

10 

Profit  &  Loss 

1,285 

3 

Accts.  Rec. 

5,050 

II 

Bills  Pay. 

9,020 

4 

Mdse. 

8,400 

12 

Accts.  Pay. 

2,400 

5 

Real  Estate 

5,000 

13 

Labor 

380 

6 

Store  Fix. 

530 

14 

Interest 

7 

Expense 

250 

6 

Repairs 

23,585 

23,585 

When  the  column  ledger  system  is  used,  the  entries  are 
posted  into  it  directly  from  footings  of  the  books  of  original 
entry  shown  on  p.  17,  and  from  the  Profit  and  Loss  entries 
in  the  Journal. 


Monthly  Column  Ledger  or  Combined  Journal-Ledger 


Charges 

Credit  Accounts 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

II 

12 

13 

14 

Total 
Charges 

Cash 

Bills 

Accts. 

Mdse. 

R.  Est. 

Store 

Exp. 

Reprs. 

Prop. 

P.  &  L. 

Bills 

Accts. 

Labor 

Int. 

Rec. 

Rec. 

Fixt. 

Pay. 

Pay. 

1 

Cash 

3000 

5000 

1200 

10 

4000 

40 

13,250 

2 

Bills  Rec. 

1000 

15 

1,015 

3 

Accts.  Rec. 

5000 

50 

5,050 

4 

Mdse. 

200 

1420 

3000 

50 

4,670 

5 

R.  Est. 

6 

Store  Fixt. 

30 

30 

7 

Expense 

350 

300 

400 

1,050 

8 

Repairs 

100 

100 

9 

Proprietor 

10 

Profit  &  Loss 

1040 

100 

1,140 

II 

Bills  Pay. 

4,500 

4,500 

12 

Accts.  Pay. 

6.500 

1500 

8,000 

13 

Labor 

300 

70 

370 

14 

Interest 

30 

5 

20 

55 

Total  Credits 

11,910 

3000 

6000 

6270 

1100 

100 

1425 

5520 

3400 

450 

55 

39,230 

The  postings  in  the  Column  Ledger  are  made  directly  from 
the  books  of  original  entry  in  the  following  manner.  From 
the  Column  Cash  Book  the  total  cash  receipts  $13,250  is 
entered  on  line  1  in  the  last  column,  Total  Charges.  The  cor- 
responding credits  are  taken  from  the  footings  of  the  columns 
on  the  Dr.  side  of  the  cash  book  and  entered  on  line  1  under 
the  proper  headings.  The  total  credit  of  cash,  $11,910,  is 
entered  at  the  bottom  of  column  1,  opposite  total  credits, 
and  the  corresponding  debits  to  the  several  accounts  are 
taken  from  the  footings  on  the  Cr.  side  of  the  Cash  Book  and 
entered  in  column  1  opposite  the  names  of  the  several  accounts. 
The  entries  Accts.  Receivable  Dr.  to  Mdse.  $5000  and  To 
Expense  $50  are  made  from  the  footings  of  the  Sales  Book. 


The  entries  Bills  Receivable  Dr.  To  Accts.  Receivable  $1000 
and  To  Interest  $15,  and  the  credits  of  Bills  Payable,  Accts. 
Payable  Dr.  $1500  and  Interest  Dr.  $20,  are  taken  from  the 
Bill  Book.  The  credits  to  Accts.  Payable,  Mdse.  Dr.  $3000, 
Expense  Dr.  $300,  and  Repairs  Dr.  $100,  are  obtained  from 
the  footings  of  the  Purchase  Book  or  Invoice  Register.  The 
Credits  to  Labor,  Mdse.  Dr.  $50  and  Expense  Dr.  $400,  and 
the  debit  entry  Labor  to  Mdse.  $70,  are  taken  from  the  pay- 
roll. 

When  all  these  entries  are  made  the  totals  of  the  columns 
and  of  the  horizontal  lines  are  entered  in  lead  pencil,  and  the 
sums  of  these  totals  must  agree  if  there  are  no  errors  in  addi- 
tion.    When  the  inventory  of  Mdse.  is  taken  and  the  profit 


20 


BOOKKEEPING  AND   COST  ACCOUNTING 


on  this  account  is  figured,  the  Profit  and  Loss  entries  may  be 
made  directly  in  the  Ledger,  preferably  in  red  ink,  viz.: 
P.  &  L.  Dr.  To  Expense  $1040  and  To  Repairs  $100,  and  Cr. 
By  Mdse.  $1420  and  By  Interest  $5,  and  then  the  footings 
should  be  entered  in  ink  and  the  total  debits  and  credits 
balanced. 

The  column  ledger  should  be  a  printed  and  ruled  sheet, 
perforated  for  insertion  in  a  loose-leaf  book.  An  objection 
is  sometimes  made  to  the  column  ledger,  that  the  bookkeeper 
is  apt  to  make  a  mistake  in  putting  a  figure  in  the  wrong 
column  or  on  the  wrong  line,  but  this  can  happen  only  from 
gross  carelessness.  If  the  bookkeeper  will  fine  himself  $5 
for  the  first  error  of  this  kind  he  will  not  be  likely  to  make  a 
second. 

After  balancing  the  column  ledger  the  totals  are  transferred 
to  the  transaction  columns  of  the  Balance  Sheet,  as  shown 
below,  and  the  figures  added  to  (or  subtracted  from  as  the 
case  may  require)  those  in  the  Balance  Sheet  at  the  beginning 
of  the  month,  to  obtain  the  figures  of  the  balance  at  the  end 
of  the  month. 

Balance  Sheet 


Bal.  Jan.   1 

Transactions 

Bal.  Feb.    1 

Dr. 

Cr, 

Dr. 

Cr. 

Dr. 

Cr. 

1 

Cash 

1,000 

13,250 

11,910 

2,340 

2 

Bills  Rec. 

4,000 

1,015 

3,000 

2,015 

3 

A/c  Rec. 

6,000 

5,050 

6,000 

5,050 

4 

Mdse. 

10,000 

4,670 

6,270 

8,400 

5 

R.  Est. 

5,000 

5,000 

6 

Store  Fix. 

500 

30 

530 

7 

Expense 

300 

1,050 

1,100 

250 

8 

Repairs 

100 

100 

9 

Proprietor 

10,500 

10,500 

10 

Profit  &  Loss 

1,000 

1,140 

1,425 

1,285 

11 

Bills  Pay. 

8,000 

4,500 

5,520 

9,020 

12 

A/c  Pay. 

7,000 

8,000 

3,400 

2,400 

13 

Labor 

300 

370 

450 

380 

14 

Interest 
Total 

55 

55 

26,800 

26,800 

39,230 

39,230 

23,585 

23,585 

In  using  the  ordinary  ledger  a  condensed  statement  of  the 
course  of  the  business  for  a  month  can  be  obtained  only  after 
compiling  from  the  books  a  statistical  abstract.  In  the 
Column  Ledger  system  the  ledger  itself  is  at  the  same  time  a 
statistical  abstract,  a  trial  balance  and  a  balance  sheet, 
furnishing  at  a  glance  all  the  information  that  can  be 
obtained  only  with  a  great  amount  of  labor  from  the  ordi- 
nary ledger. 

Notes  on  the  Combined  Journal-Ledger  System 

It  is  impossible  for  the  Journal-Ledger  to  be  out  of  balance 
provided  the  figures  in  the  horizontal  lines  and  in  the  vertical 
columns  are  correctly  added.  The  total  debits  must  equal 
the  total  credits,  fulfilling  the  fundamental  principle  of 
double-entry  bookkeeping. 

The  Journal-Ledger  may,  however,  contain  errors  which 
must  be  carefully  guarded  against.    These  are: 


1.  Omission  of  items  which  should  be  entered. 

2.  Entering  of  an  item  in  the  wrong  column  or  on  the  wrong 
line. 

3.  Entering  an  item  which  is  an  erroneous  footing  in  the 
book  of  original  entry. 

4.  Transposition  of  figures  in  making  an  entry  (writing 
76  for  67). 

Against  these  may  be  put  the  list  of  possible  errors  in  the 
Ledger  and  Trial  Balance  in  the  ordinary  system  ■ 

1.  Omission  of  a  Journal  entry. 

2.  Omitting  to  post  a  Journal  entry. 

3.  Posting  an  entry  to  a  wrong  account. 

4.  Entering  in  the  Journal  and  posting  in  the  Ledger  an 
erroneous  column  footing  of  a  book  of  original  entry. 

The  Ledger  may  be  in  perfect  balance  notwithstanding 
these  errors,  and  taking  a  Trial  Balance  will  not  lead  to  their 
discovery.  The  following  errors  are  likely  to  be  discovered, 
when  a  hunt  is  made  for  them,  after  taking  a  Trial  Balance 
and  finding  it  out  of  balance,  except  in  the  case  of  two  errors 
balancing  each  other: 

5.  Errors  in  adding  the  Dr.  and  Cr.  columns  in  a  Ledger 
account. 

6.  Errors  in  subtracting  the  Dr.  and  Cr.  column  foot- 
ings. 

7.  Errors  in  entering  the  balances  in  the  Trial  Balance. 

8.  Transposition  of  figures  in  posting  a  Journal  entry. 

9.  The  Journal  entry  out  of  balance. 

Excepting  No.  8,  these  errors  cannot  take  place  in  the  com- 
bined Journal-Ledger  system. 

There  are  many  chances  of  making  the  four  above-named 
errors  to  which  the  Journal-Ledger  is  liable,  and,  therefore, 
there  is  a  necessity  for  providing  means  for  checking  against 
them.     One  of  the  best  means  is  described  below: 

The  books  of  original  entry  are : 


Symbol. 

C  and  PC 
W 
B 

R 

S 


Cash  Book  and  Petty  Cash  Book. 

Salary  List  and  Pay  Roll. 

Bill  Book,  for  Bills  or  Notes  Receivable  and  Pay- 
able. 

Accounts  Payable  Book  or  Invoice  Register. 

Sales  Book,  or  Sales  Ticket  Register,  and  Sales 
Allowance  Book. 

Day-book  Journal  for  any  entries  that  do  not 
find  their  proper  place  in  the  other  books,  such 
as  Profit  and  Loss  entries. 


Each  of  these  books  is  provided  with  such  columns  as  may 
be  needed  for  debits  and  credits  of  Mdse.,  Expense,  Interest 
and  Discount,  or  other  accounts,  and  it  is  the  footings  of 
these  accounts  which  are  entered  monthly  in  the  Journal- 
Ledger. 

When  the  footings  of  these  accounts  are  entered  in  the 
Journal-Ledger  they  are  at  the  same  time  entered  in  Double- 
entry  on  a  printed  or  typewritten  blank  as  shown  below: 


THE  EVOLUTION  OF  BOOKKEEPING.  THE  COLUMN  LEDGER 


21 


Check  on  Journal-Ledger  Entries 


Financial  Accts. 

Mdse.  and  Expense 

Accts. 

Book 

Account 

Dr. 

Cr 

Accouni 

Dr.  Totals 

Cr.  Totals 

C 

PC 

W 

B 

B 

R 

^Cash 

Sal.  &  Wages 
Notes  Rec. 
Notes  Pay. 
Accts.  Pay. 
Accts.  Rec. 

Add  Mdae.  &  Exp. 

Total 

Profit  &  Loss 
Mdse. 
Expense 
Interest 
Proprietor 

Total  Profit  and  Loss 
Total  Journal-Ledger 

1311 

492 

3358 

63 
00 

31 

690 

574 

2789 
2 

90 
00 

67 
00 

Mdse.  Cash 
Accts.  Pay. 
Accts.  Rec. 
Notes  Rec. 
Notes  Pay 

Expense  Cash 
Accts.  Pay. 
Accts.  Rec. 
Sal.  &  W. 

Interest.     Cash 
Accts.  Pay. 
Accts.  Rec. 

2759 
2 

67 
00 

6 

1301 
3358 

55 
65 
31 

4666 

2 

1 

S 

2761 

198 
30 

574 

67 
90 
00 

00 

2 

00 

51 

5161 
3564 

94 
57 

4056 
4669 

57 
94 

8,726 

800 
563 

51 

90 
34 

8,726 
1,362 

51 

81 
43 

J 

809 

90 

1 

43 

00 
43 

3564 

57 

4669 

94 

1,364 

24 

1,364 

24 

10,090 

75 

10.090 

75 

The  totals  are  compared  with  the  figures  in  the  last  line 
and  the  last  column  of  the  Journal-Ledger  and  checked 
against  each  other.  These  checked  figures  are  then  entered 
in  the  Transactions  column  of  the  Balance  Sheet,  and  by 
adding  the  Dr.  and  Cr.  figures  to  those  of  the  balances  of 
Jan.  1,  the  Balances  of  Jan.  31  are  obtained. 

These  balances  are  further  checked  by  comparing  the  Dr. 
balance  of  Cash  and  Notes  Receivable  with  the  cash  and  notes 
on  hand;  the  balances  of  Accounts  Receivable  with  the  total 


of  the  unpaid  items  in  the  Sales  Ledger  or  Sales  Cards  Un- 
paid; the  balance  of  Notes  Payable  with  the  unpaid  items 
in  the  Bill  Book,  the  balance  of  Accounts  Payable  with  the 
unpaid  Invoices;  the  balance  of  Wages  and  Salaries  with 
the  unpaid  items  in  the  Salary  List  and  Pay  Rolls,  and 
the  balance  of  Property  and  Mdse.  accounts  with  the  in- 
ventories. 

These  same  comparisons  are  necessary  of  course  in  auditing 
a  set  of  books  kept  on  the  ordinary  system. 


CHAPTER  IV 
ACCOUNTS  FOR  RETAIL  MERCHANTS.     SELLING  PRICES.    TURNOVER 


The  Federal  Trade  Commission's  System.  "A  System 
of  Accounts  for  Retail  Merchants"  is  the  title  of  a  19-page 
pamphlet  issued  in  July,  1916,  by  the  Federal  Trade  Com- 
mission, Edward  N.  Hurley,  Chairman.  In  an  introductory 
letter  Mr.  Hurley  says:  "With  the  object  of  aiding  retail 
merchants  to  improve  their  accounting  methods  we  have 
outlined  a  simple  system  of  accounts  which  provides  for 
supplying  the  information  necessary  to  properly  direct  a 
retail  business."  From  the  introduction  the  following 
extracts  are  taken: 

Banks  are  paying  more  attention  to  the  accounting  methods 
used  by  the  merchant  to  whom  they  extend  credit.  They  are 
willing  to  give  larger  loans  to  the  merchant  who  keeps  his  books 
in  a  way  that  enables  him  to  show  the  bank  at  any  time  just  how 
his  business  is  progressing. 

Another  important  point  to  which  the  bank  gives  consideration 
is  whether  the  prospective  borrower  is  making  proper  provision 
for  depreciation  on  stock,  buildings  and  fixtures,  and  his  books 
should  be  so  arranged  as  to  show  the  amount  of  these  provisions. 
No  merchant  can  be  said  to  be  managing  his  business  properly 
unless  adequate  provision  is  made  for  depreciation. 

The  aim  has  been  to  devise  the  least  involved  system  which  will 
give  the  information  essential  to  successful  management.  The 
best  system  of  accounts  for  any  business  is  one  which  furnishes 
the  information  required  with  the  least  effort. 

The  system  here  outlined  requires  but  four  books  of  account: 


journal,  general  cash  book,  invoice  book  and  ledger.  Sales 
tickets  and  credit  tickets  are  used  for  recording  sales  and  sales 
returns. 

When  the  volume  of  business  permits,  it  is  advisable  to  use 
three  ledgers,  a  general  ledger,  a  purchase  ledger  and  a  sales 
ledger,  keeping  controlling  accounts  of  the  purchase  ledger  and 
the  sales  ledger  in  the  general  ledger. 

The  pamphlet  gives  a  list  of  45  ledger  accounts,  of  which  22 
are  "real"  or  asset  and  liability  accounts,  and  23  "nominal" 
or  profit  and  loss  accounts,  with  an  explanation  of  their  use, 
showing  what  debit  and  credit  entries  are  made  in  each. 
Examples  of  transactions  and  of  the  method  of  entering  them 
in  the  several  books  of  original  entry,  summarizing  them  in 
the  journal  and  posting  them  to  the  ledger  accounts  are  unfor- 
tunately lacking,  but  three  forms  are  given,  a  balance  sheet,  a 
profit  and  loss  statement  of  one  month's  business,  and  a 
monthly  summary  of  business,  which  are  copied  below. 

In  order  to  make  the  system  more  clearly  understood  by 
the  student  and  also  in  order  to  provide  a  basis  for  some  com- 
ments that  it  seems  to  require  we  have  attempted  to  discover 
and  reconstruct  from  the  three  forms  the  journal  and  ledger 
entries  from  which  the  forms  given  may  have  been  derived. 

From  the  explanations  of  the  accounts  and  their  uses  the 
following  paragraphs  are  taken : 


Monthly  Summary  of  Business.   1916 


Net  Sales 

Buting  Expense 

Selling  Expense 

Delivery  Expense 

Credit 

Cash 

Total 

Salaries  and 

Wages  of 
Buying  Force 

Miscellaneous 
Buying 
Expense 

Salaries  and 

Wages  of 
Sales  Force 

Advertising 

Miscellaneous 

Selling 

Expense. 

Salaries  and 
Wages  of  De- 
livery Force 

Miscellaneous 
Delivery 
Expense 

Jan. 

$3356  31 

$1301.65 

$4657  96 

$25  00 

$14.00 

$177  33 

$30.00 

$3.75 

$102.67 

$8.08 

Feb. 

Total 
(12  Months) 

Per  cent  of 
Net  Sales 

General  Expense 

■  Total  Expense 

Management 

and  Office 

Salaries 

Office  Supplies 
and  Expense 

Insurance  on 

Stock  and  Store 

Equipment 

Taxes  on 

Stock  and  Store 

Equipment 

Losses  from 
Bad  Debts 

Miscellaneous 
General 
Expense 

Rent 

Per  cent  of 
Net  Sales 

Jan. 

$269  00 

$22.03 

$1.61 

$2.50 

$33.56 

$26  79 

$71.25 

$787.57 

16.9 

Feb. 

Total 

Per  cent  of 
Net  Sales 

22 


ACCOUNTS  FOR   RETAIL  MERCHANTS.    SELLING   PRICES.    TURNOVER 


23 


Explanations  of  Some  of  the  Accounts 

4.  Reserve  for  Bad  Debts.  Credit  this  account  with  an  esti- 
mated amount  based  on  charge  sales,  sufficient  to  provide  for 
losses,  and  charge  the  account  with  the  balances  of  personal 
accounts  when  hope  of  collection  is  abandoned. 

5.  Prepaid  Insurance.  Charge  with  all  insurance  paid.  At 
the  end  of  each  month  credit  the  account  and  charge  No.  35 
(Insurance  on  Stock  and  Store  Equipment)  and  No.  44  (Rent 
Income)  with  their  monthly  proportion,  the  balance  being  an 
asset  as  "  Prepaid  Insurance." 

G.  .4ccn«(/  Interest  Receivable.  Charge  at  the  end  of  the  period 
with  all  accrued  interest  (not  yet  paid)  crediting  Interest  account. 
When  the  interest  is  received  it  is  credited  to  "  Accrued  Interest 
Receivable." 

9.  Reserve  for  Depreciation  on  Store  and  Warehouse.  Credit 
with  the  amount  of  depreciation,  charging  "Rent  Income." 

17.  Accrued  Interest  Payable.  Credit  at  the  end  of  the  period 
with  interest  accrued  (not  yet  paid)  on  notes,  etc.,  due  others, 
charging  Interest  Account.  When  the  interest  is  paid  it  is 
charged  to  "Accrued  Interest  Payable." 

18.  Accrued  Salaries  and  Wages. — Credit  this  account  with 
salaries  and  wages  earned  and  unpaid  at  the  end  of  each  month 


and  charge  the  proper  expense  accounts.     When   payment  is 
made  this  account  is  charged. 

19.  Accrued  Taxes. — Credit  with  the  taxes  due  up  to  the  end 
of  each  month,  charging  the  proportionate  amounts  to  the 
accounts  to  which  they  belong.  When  taxes  are  paid  this 
account  will  be  charged. 

23.  Sales.  Credit  with  the  total  of  the  charge  tickets  for  the 
month  and  the  total  cash  sales  from  the  "Cash  Sales"  column  in 
the  Cash  Book.  Charge  the  account,  at  the  selling  price,  for 
all  merchandise  returned.  The  difference  in  this  account  will 
be  the  net  sales,  which  is  transferred  to  the  credit  of  "Trading 
Account." 

24.  Sales  Alloicances.  Charge  with  any  allowance  given  a 
customer  not  contemplated  when  the  sale  was  made.  Allow- 
ances should  not  be  charged  to  "Sales,"  but  closed  at  the  end  of 
the  period  into  "Trading  Account." 

25.  Merchandise  Purchases. — Charge  with  the  face  of  the 
invoices  before  deducting  cash  discounts;  also  with  freight, 
expressage  and  drayage.  Credit  with  merchandise  returned 
and  with  any  allowances  for  defects  in  goods  received.  The 
balance  of  the  account  is  transferred  to  the  debit  of  "Trading 
Account." 


Balance  Sheet,  Jan.  31,    1916 


Assets 

CURRENT    ASSETS 

1 

Cash  on  hand  and  in  bank 

$1611 

67 

2 

Notes  receivable — Trade  Customers 

191 

84 

3 

Accounts  Receivable — Trade  Customers 

$3518 

81 

4 

Less  Reserve  for  Bad  Debts 

33 

56 

3485 
2909 

25 
06 

Inventory  of  merchandise  (at  cost) 

5 

Prepaid  Insurance 

100 

14 

6 

Accrued  Interest  Receivable 
Total  current  assets 

71 

$8298 

67 

FIXED    ASSETS 

7 

Store  Property 

4500 

00 

8 

Warehouse  Property 

1975 

00 

6475 

00 

9 

Less  Reserve  for  Depreciation  on  Store  and  Warehouse 

26 

98 

6448 
272 

02 
71 

10 

Store  Equipment 

11 

Office  Equipment 

74 

37 

12 

Delivery  Equipment 

Total  fixed  assets 

Total  assets 

Liabilities  and  Capital 

396 

67 

7191 

77 

15490 

44 

CURRENT    LIABILITIES 

13 

Notes  Payable — Trade  Creditors 

1210 

50 

14 

Notes  Payable — Banks 

900 

00 

15 

Accounts  Payable — Trade  Creditors 

3685 

72 

16 

Accounts  Payable — Others 

485 

00 

17 

Accrued  Interest  Payable 

19 

23 

18 

Accrued  Salaries  and  Wages 

82 

00 

19 

Accrued  Taxes 

Total  current  liabilities 

7 

75 

6390 

20 

21 

Mortgages  Payable  (warehouse) 
Total  liabilities 

1250 

00 

7640 

20 

22 

Proprietor's  Capital  Account 
Total  liabilities  and  capital 

7850 

24 

15490 

44 



24 


BOOKKEEPING  AND   COST  ACCOUNTING 


Profit  and  Loss  Statement,  Jan.  31,    1916 


PerCt 

PerCt 

23 

Sales 

4659 

96 

24 

Less  Sales  Allowances 
Net  Sales 

2 

00 

100.0 

4657 

96 

Inventory  of  merchandise  at  beginning 

3451 

09 

25 

Merchandise   Purchases  (cost   delivered   at 
store) 

2759 

67 

6210 

76 

Deduct  inventory  of  merchandise  at  closing 

3062 

17 

Less  Stock  Depreciation 
Net  cost  of  goods  sold 

Gross  profits  from  trading 

153 

II 

2909 

06 

3301 

70 

70  9 

1356 

26 

29.1 

BUYING    EXPENSE. 

26 

Salaries  and  Wages  of  Buying  Force 

25 

00 

27 

Miscellaneous  Buying  Expense 
Total  buying  expense 

14 

00 

39 

00 

0  8 

SELLING    EXPENSE 

28 

Salaries  and  Wages  of  Sales  Force 

177 

33 

29 

Advertising 

30 

00 

30 

Miscellaneous  Selling  Expense 
Total  selling  expense 

3 

75 

211 

08 

4   5 

DELIVERY    EXPENSE 

31 

Salaries  and  Wages  of  Delivery  Force 

102 

67 

32 

Miscellaneous  Delivery  Expense 
Total  delivery  expense 

8 

08 

110 

75 

2.4 

GENERAL    EXPENSE 

33 

Management  and  Office  Salaries 

269 

00 

34 

Office  Supplies  and  Expense 

22 

03 

35 

Insurance  on  Stock  and  Store  Equipment 

1 

61 

36 

Taxes  on  Stock  and  Store  Equipment 

2 

50 

37 

Losses  from  Bad  Debts 

33 

56 

38 

Miscellaneous  General  Expense 

26 

79 

39 

Rent 

Total  general  expense 
Net  profit  from  trading 

71 

25 

426 

74 

787 

57 

9  2 

16  9 

568 

69 

12  2 

INCOME    FROM    OTHER    SOURCES 

42 

Interest 

n 

09 

43 

Cash  Discounts  on  Merchandise  Purchases 

6 

55 

44 

Rent  income  (net) 

16 

52 

45 

Miscellaneous  Outside  Income 
Total  net  profit 

2 

00 

7 

98 

576 

67 

37.  Losses  from  Bad  Debts.*  Charge  this  account  with  the 
amount  that  has  been  reserved  for  bad  debts  (4). 

39.  Rent.  Charge  with  all  rents  paid.  If  the  store  is  owned 
rent  should  be  charged  equivalent  to  the  amount  it  could  be 
rented  for  to  others,  crediting  "Rent  Income"  (44).  In  the 
latter  event  "Rent  Income"  should  be  charged  with  the  taxes, 
insurance,  repairs  and  depreciation  on  the  store. 

40.  Trading  Account.  This  account  shows  the  inventory  of 
merchandise  at  opening,  and  it  is  not  touched  again  until  the 
books  are  closed.  It  is  then  charged  with  Merchandise  Pur- 
chases (25)  and  Sales  Allowances  (24)  and  credited  with  Sales 
(23)  and  with  the  inventory  at  the  close.     The  balance  is  trans- 

*  This  title  is  a  misnomer  since  the  loss  has  not  actually  been 
incurred.  A  better  title  would  be  "Insurance  for  Bad  Debts." 
It  represents  a  monthly  expense  charge,  Reserve  for  Bad  Debts 
being  credited,  to  provide  against  future  bad  debts. 


ferred  to  the  credit  of  "Profit  and  Loss  Account."     The  inventory 
is  then  brought  down  as  a  new  balance. 

41.  Profit  and  Loss  Account.  Charge  with  the  balances  of  all 
the  expense  accounts;  credit  with  the  gross  profit  from  trading 
and  with  the  net  income  from  other  sources.  The  difference  will 
be  the  net  profit  or  loss,  which  is  closed  into  the  proprietor's 
account;  if  a  partnership,  to  the  partners'  accounts  according 
to  their  several  interests,  and,  if  a  corporation,  to  the  surplus 
account. 

44.  Rent  Income.  If  the  store  is  owned,  the  rent  which  has 
been  charged  to  account  39  should  be  credited  to  this  account 
and  it  should  be  charged  with  insurance,  taxes,  depreciation  and 
repairs  on  store.     The  account  is  closed  into  "Profit  and  Loss." 

45.  Miscellaneous  Outside  Income.  Credit  this  account  with 
incidental  receipts  such  as  toll  from  telephone  pay  stations  in  the 
store,  etc. 


ACCOUNTS  FOR  RETAIL  MERCHANTS.    SELLING   PRICES.    TURNOVER 


25 


42.  Interest.  Charge  this  account  with  all  interest  paid  and 
credit  it  with  all  interest  received  *  and  close  into  "Profit  and 
Loss  Account."     (Compare  Nos.  6  and  17.) 

The  journal  and  ledger  entries,  which  have  been  derived 
from  the  monthly  statements,  are  given  below: 

Journal 


Journal — (Continued) 


1 

Cash                                        To  Sundries 

1311 

63 

23 

To  Sales 

1301 

65 

43 

To  Cash  Discts. 

6 

55 

42 

To  Interest 

I 

43 

45 

To  Misc.  0.  Inc. 

2 

00 

1 

Sundries            To  Cash 

690 

90 

27 

Misc.  Buying  Exp. 

14 

00 

30 

Misc.  Selling  Exp. 

3 

75 

32 

Misc.  Delivery  Exp. 

8 

08 

33 

Office  Supplies  and  Exp. 

22 

03 

38 

Misc.  Gen.  Exp. 

26 

79 

44 

Rent  Income  (Store  Repairs) 

15 

01 

16 

Wages  and  Salaries 

492 

00 

5 

Prepaid  Insurance 

109 

24 

The  two  entries  above  may  be  omitted  from  the  Journal  if 
a  Column  Cash  Book  is  used  and  the  footings  of  the  columns 
are  posted  directly  into  the  Ledger.  The  following  entry  may 
also  be  omitted  and  posted  from  the  footings  of  the  columns 
of  the  Pay  Roll  and  salary  list. 

Journal — (Continued) 


IB 

Sundries            To  Wages  and  Salaries 

574 

00 

26 

Salaries  and  WTages  Buying  Expense 

25 

00 

28 

Salaries  and  Wages  Selling  Expense 

177 

33 

31 

Salaries  and  Wages  Delivery  Expense 

102 

67 

33 

Management  and  Office  Salaries 

269 

00 

15 

Sundries            To  Accts.  Payable 

2789 

67 

25 

Merchandise  Purchases 

2759 

67 

29 

Advertising 

30 

00 

5 

Sundries            To  Prepaid  Insurance 

9 

10 

4( 

Rent  Income 

7 

49 

35 

Insurance  on  Stock  and  Store  Equipment 

1 

61 

19 

Sundries            To  Accrued  Taxes 

7 

75 

44 

Rent  Income 

5 

25 

36 

Taxes  on  Stock  and  Store  Equipment 

2 

50 

44 

Rent  Income 

26 

98 

9 

To  Reserve  for  Dep'n  on  Store  and 

Warehouse 

26 

98 

*  This  is  not  clear  and  is  not  in  harmony  with  Nos.  6  and  17.  It 
does  not  seem  [to  agree  with  the  general  principle  "The  account 
which  receives  is  debtor  to  the  account  which  gives."  The  fact  is 
that  "interest  paid"  means  that  cash  (or  other  value  or  credit)  is 
given  on  account  of  interest,  therefore  Cash  is  credited  and  Interest, 
which  is  an  expense,  is  charged.  "Interest  received"  means  that 
cash  is  received  on  account  of  interest,  therefore  Cash  is  charged, 
and  Interest,  which  in  this  case  is  revenue  or  income,  is  credited. 

If  we  owe  John  Doe  S1000  and  settle  his  account  by  giving  him  a 
three-months'  note  for  $1015,  the  entry  is 

John  Doe  S1000  To  Bills  Payable  S1015 

Interest  15 

If  John  Doe  owes  us  $1000  and  he  gives  us  a  note  for  S1015  in 
payment  the  entry  is 


Bills  Receivable,  $1015 


To  John  Doe,  $1000 
To  Interest  15 


39 

Rent 

71 

25 

44 

To  Rent  Income 

71 

25 

42 

Interest 

19 

23 

17 

To  Accrued  Interest  Payable 

19 

23 

6 

Accrued  Interest  Receivable 

0 

71 

42 

To  Interest 

0 

71 

37 

Losses  from  Bad  Debts 

33 

56 

4 

To  Reserve  for  Losses  from  Bad  Debts 

33 

56 

3 

Accounts  Receivable 

3358 

31 

23 

To  Sales 

3358 

31 

24 

Sales  Allowances 

2 

00 

3 

To  Accounts  Receivable 

2 

00 

40 

Trading  Account              To  Sundries 

2761 

67 

24 

To  Mdse.  (Cost  of  Sales) 

2759 

67 

25 

To  Sales  Allowances 

2 

00 

23 

Sales 

4659 

96 

40 

To  Trading  Account 

4659 

96 

41 

Profit  &  Loss         To  Sundries 

804 

66 

26 

To  Salaries  and  Wages,  Buying 

25 

00 

28 

To  Salaries  and  Wages,  Selling 

177 

33 

31 

To  Salaries  and  Wages,  Delivery 

102 

67 

33 

To  Management  and  Office  Salaries 

269 

00 

29 

To  Advertising 

30 

00 

27 

To  Misc.  Buying  Expenses 

14 

00 

30 

To  Misc.  Selling  Expenses 

3 

75 

32 

To  Misc.  Delivery  Expense 

8 

08 

34 

To  Office  Supplies  and  Exp. 

22 

03 

35 

To  Insurance  on  S.  &  S.  Equip. 

1 

61 

36 

To  Taxes  on  S.  &  S.  Equip. 

2 

50 

37 

To  Losses  from  Bad  Debts 

33 

56 

38 

To  Misc.  Gen  Expense 

26 

79 

39 

To  Rent 

71 

25 

42 

To  Interest 

17 

09 

41 

Sundries           To  Profit  &  Loss 

1381 

33 

40 

Trading  Account 

1356 

26 

43 

Cash  Discounts 

6 

55 

44 

Rent  Income 

16 

52 

45 

Misc.  Outside  Income 

2 

00 

41 

Profit  &  Loss 

576 

67 

22 

To  Proprietor's  Capital  Account 

576 

67 

Ledger 

Cash 


To  Bal. 
To  Sundries 

990 
1311 

94 
63 

By  Sunds., 
By  Bal. 

690 
1611 

90 

67- 

2302 

57 

2302 

57 

2       Notes  Receivable 


To  Bal. 


191 


84 


3.     Accts.  Receivable 


To  Bal. 
To  Sales 


162 
3358 

50 
31 

3520 

81 

By  Sales  Allowances 
By  Bal. 


2 
3S18 


3520 


4.     Reserve  for  Bad  Debts 


By  Losses  from  B.  D. 


" 


00 
81 


SI 


So 


26 


BOOKKFEPIXG  AND   COST  ACCOUNTING 


Ledger — ( Cont  in  ued) 
5.     Prepaid  Insurance 


To  Cash 


109 

24 

By  Siinils 
By  Bal. 


9 

100 


10 
U 


To  Bal. 


To  C;,-h 

To  Bal. 


3GS5 


72 


By  Bal. 
By  Sundries 


16.     Acets.  Pay. — Others 


By  Bal. 


17.     Accrued  Interest  Payable 


By  Interest 


18.     Salaries  and  Wages 


492 

82 


By  Sundries 


19.     Accrued  Taxes 


By  Sundries 


6.    Accrued  Interest  Rec. 

To  Interest 

i 

0 

71 

7.     Store  Property 

To  Bal. 

4500 

00 

8.     Warehouse  Property 

To  Bal. 

1975 

00 

9.     Reserve  for  Depreciation  on  Store  and  Warehouse 

By  Rent  Income 

26 

98 

10.     .Store  Equipment 

To  Bal. 

272 

71 

1  1 .     Office  Equipment 

To  Bal. 

74 

37 

12.     Delivery  Equipment 

To  Bal. 

396 

67 

13.     > 

Jotes  Payable — Trade  Creditors 

Bv  Bal. 

1 

1210 

50 

14.     Notes  Payable — Banks 

By  Bal. 

900 

00 

15. 

Accts.  Pay. — Trade  Creditors 

896   ■  05 
2789  !  67 


485       00 


19      23 


574 


00 


20.     Proprietor's  Drawing  Account   (no  entries) 
21.     Mortgage  Payable,  Warehouse 


By  Bal. 


22.     Proprietor's  Capital  Acct. 


To  Bal. 


24 


By  Bal. 
P.  &  L. 


23.      Sales 


To  Trading  a  c 


4659 


96 


By  Accts.  Rec. 
By  Cash 


1250      00 


7273 
576 


57 
67 


3358 
1301 


31 
65 


7      75 


24.     Sales  Allowances 

To  Accts.  Rec. 

2 

00 

By  Trading  a/c 

2 

00 

25.     Merchandise  Purchases 

To  Acets.  Pay. 

2759      67 

By  Trading  a/c 

2759 

67 

26.     Salaries  and  Wages,  Buying 

To  Accrued  S.  &  W. 

25 

00 

By  Profit  &  L. 

25 

00 

27.      Miscellaneous  Buying  Expenses 

To  Cash 

14 

00 

By  P.  &  L. 

14 

00 

28.     Salaries  and  Wages,  Selling 

To  Accrued  S.  &  W. 

177 

33 

By  P.  &  L. 

177 

33 

29.     Advertising 

To  Accts.  Pay. 

30 

00 

By  P.  &  L. 

30 

00 

30.     Miscellaneous  Selling  Expenses 

To  Cash 

3      75 

By  P.  &  I,. 

3 

75 

31.     Salaries  and  Wages,  Delivery 

To  Accrued  S.  &  W. 

102 

67 

By  P.  &  L. 

102 

67 

32.     Miscellaneous  Delivery  Expense 

To  Cash 

8 

1 

08 

By  P.  &  L. 

8 

08 

33.      Management  and  Office  Salaries 

To  Accrued  S.  &  W. 

269 

00 

1 
By  P.  &  L. 

269 

00 

34.     Office  Supplies  and  Expense 

To  Cash 

22      03 

By  Profit  &  L. 

22 

03 

35.     Insurance  on  Stock  and  Store  Equip. 

To  Prepaid  Ins. 

1 

61 

1 
1  By  Profit  &  L. 
1 

1 

61 

36.     Taxes  on  Stock  and  Store  Equip. 

To  Accrued  Taxes 

2 

50 

1 
By  Profit  &  L. 

2 

50 

ACCOUNTS  FOR  RETAIL  MERCHANTS.     SELLING  PRICES.     TURNOVER 
Ledger— (Continued)  42.    Interest 

37.     Losse9  from  Bad  Debts 


To  Reserve  for  B.  D. 

33 

56 

By  Pro6t  &  L. 

33 

56 

38.     Misc.  General  Expense 

To  Cash 

26 

79 

By  Profit  &  L. 

26 

79 

39.     Rent 

To  Rent  Income 

71 

25 

By  Profit  &  L. 

71 

25 

40.     Trading  Acct. 

To  '  al.  (Inventory) 
To  Mdse.  Purchases 
To  Sales  Allowances 
To  Profit  &  L. 


3451 

09 

2759 

67 

2 

00 

1356 

26 

7569 

02 

By  Sales 

By  Bal.  (Inventory) 


4659 

96 

2909 

06 

7569 

02 

41.     Profit  and  Loss 


To  Sundries 
To  Prop. 


804 
576 


By  Sundries 


1381 


33 


43.     Cash  Discounts  on  Purchases 


To  Profit  t.v   L. 


55 


By  Cash 


44.      Rent  Income 


27 


To  Acer. 

Int 

Pay. 

19 

23 

By  Ac.  Int. 
By  Cash 
By  P.  &  I.. 

Reo. 

0 

1 
17 

71 
43 
09 

•  ■-• 


To  Acer.  Taxes 

5 

25 

By  Rent 

71 

75 

To  Prepaid  Ins. 

7 

49 

To  Depn.  S.  &  W. 

26 

98 

To  Cash 

15 

01 

To  Profit  &  L. 

16 

52 

71 

25 

45.     Miscellaneous  Outside  Income 


To  Profit  &  L. 


2       00 


By  Cash 


00 


From  this  ledger  the  Balance  Sheet  may  be  made  as  below, 
showing  the  transactions  during  the  month  as  well  as  the 
balances  at  the  end  of  the  month.  A  sheet  of  this  form  with 
thirteen  double  columns  would  show  the  whole  course  of  the 
business  each  month  for  six  months. 


BALANCE  SHEET 


7,8 


2 
3 
4 
5 
6 

10-12 
9 
13 
14 
15 
16 
17 
18 
19 
21 
22 
23 
24 
25 
26-27 
28-29-30 
31    32 
33-34 
35-36 
37 
38 
39 
40 
41 
42 
43 
44 
45 


Cash 

Notes  Rec. 

Accts.  Rec. 

Res.  for  Bad  Debts 

Prepaid  Ins. 

Accrued  Int.  Rec. 

Real  Est.  &  E. 

Res.  for  Dep'n. 

Notes  Pay.  Trade 

Notes  Pay.  Banks 

Accts.  Pay.  Trade 

Accts.  Pay.  others 

Accrued  Int.  Pay. 

Accrued  Sal.  &  Wages 

Accrued  Taxes 

Mortgage  Payable 

Proprietor 

Sales 

Sales  Allowances 

Mdse.  Purchases 

Buying  Exp. 

Selling  Exp. 

Delivery  Exp. 

Office  Exp. 

Ins.  &  Tax  on  Store  Equip. 

Losses  from  Bad  Debts 

Misc.  Gen.  Exp. 

Rent 

Trading  Aeet. 

Profit.  &  Loss 

Interest 

Cash  Discts. 

Rent  Income 

Misc.  Outside  Income 


Trial  Balance, 
Jan.   I 


Dr. 


990 
191 
162 


7,218 


3,451 


09 


12.015 


1,210 
900 
896 
485 


1,250 
7,273 


17.015 


12 


Transactions, 
Jan i ary 


1,311 

3,358 

109 
0 


4,659 

2 

2,759 

39 

211 

110 

291 

4 

33 

26 

71 

4.117 

1,381 

19 

6 

71 


'>079 


38 


690 

2 

33 

9 


26 


2,789 

19 
574 

7 

576 

4,659 

2 

2,759 


4.659 
1,381 

19 
6 

71 


57 


I  "5.079        38 


Trial  Balance, 
Jan.  31 


Dr. 


1,611 
191 

3,518 

100 

0 

7,218 


2,' 09 


2,909 


15.550 


06 


Cr. 


06 


33 


15.550 


26 

98 

1,210 

50 

900 

00 

3,685 

72 

485 

00 

19 

23 

82 

00 

7 

75 

1,250 

00 

7,850 

24 

>6 


28 


BOOKKEEPING  AND  COST  ACCOUNTING 


Suggested  Improvements  of  the  Trade  Commission's 
System 

The  system  described  by  the  Commission  is  an  excellent 
illustration  of  the  later  elaborated  methods  of  the  old  school  of 
accountants,  and  it  should  be  clearly  understood  by  students 
before  they  proceed  to  modern  methods  in  which  much  of  the 
clerical  labor  required  by  the  older  methods  is  dispensed  with. 

The  system  is  open  to  the  objection  that  it  violates  the 
principle  laid  down  by  the  Commission: 

"The  best  system  ot  accounts  for  any  business  is  one  which 
furnishes  the  information  required  with  the  least  effort." 
Instead  of  its  being  "the  least  involved  system  which  will 
give  the  information  essential  to  successful  management,"  it 
is  a  highly  involved  one,  requiring  much  more  labor  to  keep 
it  than  is  needed  with  other  systems. 

It  has  45  accounts,  14  of  which,  Nos.  26  to  39  inclusive, 
are  subdivisions  of  expense,  and  are  carried  through  all  the 
routine  of  journal,  double-entry  ledger,  balance  sheet,  profit 
and  loss  statement,  and  monthly  summary.  Instead  of 
having  a  single  Real  Estate  and  Equipment  Account,  the 
subdivisions  of  it  being  entered  once  a  year  in  certain  columns 
of  an  Inventory  Book,  there  are  five  separate  accounts.  It 
has  two  accounts  for  Notes  Payable,  one  for  banks  the  other 
for  trade  creditors.  If  there  is  any  necessity  for  separating 
the  two  kinds  of  notes,  they  may  be  marked  with  the  letters 
B  or  T  in  the  Notes  Payable  Book.  The  same  may  be  said 
of  the  two  Accounts  Payable,  "trade  creditors"  and  "others." 
Many  of  the  accounts  show,  not  actual  business  transactions, 
but  fictitious  or  imaginary  transactions,  or  accruing  expense 
liabilities  which  there  is  no  need  of  entering  in  the  general 
ledger  until  they  are  paid.  If  there  is  need  to  have  these 
liabilities  taken  into  account  in  order  to  avoid  inaccuracy  in 
Profit  and  Loss  statements,  they  can  be  entered  in  a  memo- 
randum "Profit  and  Loss  Adjustment"  at  the  bottom  of 
each  monthly  balance  sheet.  The  accounts  referred  to  are: 
Reserve  for  Bad  Debts;  Losses  from  Bad  Debts  (not  actual 
losses  but  merely  a  monthly  charge  to  an  expense  account, 
offsetting  the  monthly  credit  to  the  Reserve  account) ;  Reserve 
for  Depreciation  on  Store  and  Warehouse,  the  monthly 
credit  of  which  is  charged  to  another  expense  account; 
Rent  and  Rent  Income,  both  of  which  are  accounts  of  imag- 
inary transactions,  the  buildings  being  owned  and  not  rented. 

Instead  of  using  a  single  Merchandise  account,  as  in  older 
and  simpler  systems,  it  is  divided  into  five  accounts:  Mer- 
chandise Purchases;  Cash  Discounts  on  Merchandise  Pur- 
chases; Sales;  Sales  Allowances;  and  Trading  Account.  In 
the  old  systems  Merchandise  Account  would  appear  as  follows 
in  the  Ledger: 

Mdse. 


To  Bal.  (Invty.) 
To  Accts.  Reel.  (A) 
To  Accts.  Pay. 
To  Profit  &  Loss 

3451 

2 

2759 

1362 

09 
00 
67 
81 

By  Cash 
By  Cash  (D) 
By  Accts.  Rec. 
By  Bal.  (Invty.) 

1301 

6 

3358 

2909 

65 
55 
31 
06 

7575 

57 

7575 

57 

To  Bal. 

2909 

06 

(A)  Sales  Allowances.     (D)   Cash  Discounts  on  Purchases. 

By  the  Commission's  system  the  same  transactions  would 
be  recorded  as  follows: 


Merchan 

dise 

Purchases 

To  Accts.  Pay. 

2759 

67 

By  Trading  Acct. 

2759 

67 

Cash  Discounts  on  Mdse.  Purchases 

To  Profit  and  Loss 

6 

55 

By  Cash 

6 

55 

Sales 

To  Trading  Acct. 


4659 

96 

4659 

96 

By  Cash 

By  Accts.  Rec. 


1301 
3358 


4659 


Sales  Allowances 


To  Accts.  Rec'l 


2       00       By  Trading  Acct. 


Trading  Account 


To  Bal.  (Invty.) 
To  Mdse.  Purchases 
To  Sales  Allowances 
To  Pi  out  &  Loss 


3451 

2759 

2 

1356 


7569 


02 


By  Sales 

By  Bal.  (Invty.) 


4659 
2909 


7569 


% 

06 


02 


In  these  five  accounts  there  are  fifteen  entries,  while  in  the 
single  merchandise  account  there  are  only  eight.  The  five 
accounts  give  not  a  scrap  more  of  information  than  the  single 
account. 

In  the  Profit  and  Loss  Statement  the  "Net  Cost  of  Goods 
Sold"  is  given,  erroneously,  as  $3301.70  in  the  following 
statement : 


Inventory  at  beginning 
Purchase  at  Cost 

3062 
153 

17 
II 

3451 
2759 

09 
67 

6210 
2909 

76 

Deduct  Invty.  at  closing 
Less  Stock  Depreciation 

06 

Net  Cost  of  Goods  Sold 

3301 

70 

The  depreciation  of  5  per  cent,  or  $153.11  on  the  goods 
remaining  unsold  is  thus  made  to  increase  the  cost  of  the 
goods  sold. 

A  more  correct  statement  would  be  the  following: 


Inventory  at  beginning 
Purchase,  at  Cost 

3451 
2759 

09 
67 

6210 
3062 

76 

Inventory  at  closing,  at  cost  value 

17 

Net  cost  of  Goods  Sold 

3148 

59 

The  Profit  and  Loss  Statement  would  then  read  as  below: 


Sales,  less  Sales  Allowances 
Cost  of  Goods  Sold 

4657 
3148 

96 
59 

Profit  on  Sales 
Deduct  Depreciation  on  goods  unsold 

Gross  Profit  on  Trading 

1509 
153 

1356 

37 
II 

26 

The  first  improvement  to  be  made  in  the  Trade  Commis- 
sion's system  is  to  consolidate  some  of  the  fourteen  expense 
accounts  so  as  to  reduce  their  number.  The  "Monthly 
Expense  Ledger,"  see  page  31,  reduces  them  to  eight.  The 
next  is  to  consolidate  the  five  property  and  equipment  ac- 


ACCOUNTS  FOR  RETAIL  MERCHANTS.    SELLING   PRICES.    TURNOVER 


29 


counts  into  one  Real  Estate  and  Equipment  Account,  letting 
the  subdivisions  remain  in  the  Inventory  Book.  The  44 
accounts  of  the  original  Balance  Sheet  are  thus  reduced  to  34, 
as  shown  in  the  improved  Balance  Sheet  on  page  27,  in 
which  the  monthly  transactions  are  given  as  well  as  the  bal- 
ances at  the  beginning  and  end  of  the  month. 

A  further  step  is  to  consolidate  the  eight  expense  accounts 
of  this  balance  sheet  into  one  Expense  Account  in  the  General 
Ledger,  taking  the  footing  of  the  last  column  of  the  Monthly 
Expense  Ledger,  $787.57,  as  the  debit  to  Expense  Account, 
balancing  the  eight  credit  accounts  whose  titles  are  given  in 
the  headings  of  the  columns,  the  amounts  being  in  the  bottom 
line.     By  this  means  the  number  of  accounts  is  reduced  to  27. 

The  next  stage  in  reducing  the  labor  of  keeping  the  accounts 
is  the  abandonment  of  the  old-fashioned  Journal  and  Ledger 
and  the  adoption  of  the  Column  Ledger,  or  Monthly  Combined 
Journal-Ledger,  with  printed  titles  of  the  accounts,  shown  on 
page  31.     For  a  description  of  this  Ledger,  see  page  17. 

One  page  of  this  Ledger  is  used  for  each  month.  The 
footings  of  the  columns  (Total  Debits)  and  the  totals  of  the 
horizontal  lines  (Total  Credits)  are  transferred  to  the  Dr. 
and  Cr.  columns  of  Transactions  in  the  Balance  Sheet,  the 
titles  of  accounts  in  which  are  also  printed.  One  sheet  will 
last  six  months,  showing  a  complete  record  of  the  total  trans- 
actions of  each  account  for  each  month  if  the  sheet  is  made 
with  thirteen  double  columns  (Dr.  and  Cr.)  seven  of  them 
being  for  balances  and  six  for  transactions. 

In  making  entries  in  the  monthly  Expense  Ledger  and  in 
Combined  Journal-Ledger  the  figures  are  obtained  from  the 
footings  of  the  columns  of  the  books  of  original  entry,  Cash 
Book,  Petty  Cash  Book,  Bill  Book  (or  Notes  Receivable  and 
Notes  Payable),  Invoice  Register,  Sales  Book  (or  Sales  Ticket 
Record),  just  as  in  making  the  entries  in  an  ordinary  journal. 

In  ordinary  bookkeeping  methods  the  total  monthly  pur- 
chases of  merchandise,  as  shown  in  the  Invoice  Register  or 
Accounts  Payable  book,  would  be  journalized  in  the  entry 
Mdse.  To  Accounts  Payable  $2759.67;  $2759.67,  and  the 
entry  would  be  posted  to  two  accounts  in  the  Ledger.  In 
the  Combined  Journal-Ledger  System  the  entry  is  made 
both  as  a  journal  entry  and  as  a  ledger  entry  at  the  same  time 
by  a  single  writing  of  the  amount  $2759.67  in  the  vertical 
column  with  the  printed  heading  "Mdse.,"  on  the  horizontal 
line  having  the  printed  title  "Accts.  Payable." 

Comparing  the  amount  of  labor  required  to  enter  the  figures 
in  the  Expense  Ledger  and  the  Journal  Ledger  with  the  old 
method  of  writing  the  entries  in  the  Journal  and  then  posting 
them  in  the  Ledger,  we  have  the  following: 


Entries  of  figures  in  the  Expense  Ledger 

Entries  of  figures  in  the  Journal-Ledger 

70 
70 

18 
28 

Total 

Items  written  in  the  Journal 

46 

Total 

140 

There  are  18  journal  entries  comprising  the  70  items,  and 
postings  are  made  on  29  of  the  ledger  pages.  In  making  a 
trial  balance  all  the  45  accounts  in  the  ledger  have  to  be 
examined  and  their  balances  written  down.  The  Journal- 
Ledger  is  self-balancing,  if  the  columns  and  horizontal  lines 
are  correctly  added. 

In  the  Monthly  Expense  Ledger  and  Journal-Ledger 
here  shown  not  a  single  transaction  entered  in  the  old- 
style  journal  has  been  omitted.  Such  entries,  for  example, 
as  Salaries  and  Wages,  Buying  Expense  To  Accrued  Salaries 
and  Wages,  $25.00,  and  Profit  and  Loss  To  Salaries  and  Wages, 
Buying  Expense,  all  appear  in  the  one  entry  $25.00  in  the  Ex- 
pense Ledger,  the  transfer  to  Profit  and  Loss  being  taken  care 
of  in  the  credit  of  $787.57  to  Expense  in  the  Journal  Ledger. 

The  Expense  Ledger  and  the  Journal  Ledger  may  be 
greatly  improved  and  reduced  in  bulk  by  removing  from 
them  the  following  accounts: 


Reserve  for  Bad  Debts 

Dr. 

Cr. 

4 

33 

56 

5 

Prepaid  Insurance 

109 

24 

9 

10 

6 

Accrued  Interest  Receivable 

0 

71 

9 

Reserve    for    Depreciation    of    Store    and 

Warehouse 

26 

98 

17 

Accrued  Interest  Payable 

19 

23 

19 

Accrued  Taxes 

7 

75 

24 

Sales  Allowances 

2 

00 

2 

00 

37 

Losses  and  Bad  Debts 

33 

56 

33 

56 

40 

Trading  Account 

4659 

96 

4659 

96 

43 

Cash  Discounts  on  Purchases 

6 

55 

6 

55 

44 

Rent  Income 

71 

25 

71 

25 

45 

Miscellaneous  Outside  Income 
Unbalanced  Accounts 

2 

00 

2 

00 

4885 

27 

4871 

94 

100 

85 

87 

52 

Profit  &    Loss  Adjustment  for  Accts.  re- 

moved from  Ledger 

13 

33 

The  reasons  for  taking  Sales,  Sales  Allowances,  Cash  Dis- 
counts on  Merchandise  Purchases,  and  Trading  Account  out 
of  the  Ledger  and  including  them  all  in  Mdse.  Account  have 
already  been  given,  but  they  may  be  repeated  here  in  a  dif- 
ferent form: 


Transactions 


(1) 

Inventory  at  beginning 

3451 

09 

(5) 

Sell  goods  on  Credit 

3358 

31 

(2) 

Purchase  goods  on  account 

2759 

67 

(6) 

Make  allowance  on  invoice 

2 

00 

(3) 

Receive  Cash  Discount 

6 

55 

(7) 

Inventory,  final.  3062.17  less  depn  153.  1 1 

2909 

06 

(4) 

Sell  goods  for  Cash 

1301 

65 

Journal  Entries  on  the  Commission's  System 

Original 

Transfer  and  Balancing 

en 

Mdse.  Inventory 

3451 

09 

(2) 

Mdse.  To  Accts.  Pay. 

2759 

6? 

(3) 

Cash  Discts.  To  Profit  &  Loss 

6 

55 

(3) 

Cash  To  Cash  Discts. 

6 

55 

(4)  (5) 

Sales  To  Trading  Acct. 

4659 

96 

(4) 

Cash  To  Sales 

1301 

65 

(6) 

Trading  Acct.  To  Sales  Allow. 

2 

00 

(5) 

Accts.  Rec'l.  To  Sales 

3358 

31 

Trading  Acct.  To  Mdse.    ("Net  Cost") 

2759 

67 

(6) 

Sales  Allow.  To  Accts.  Rec. 

2 

00 

Trading  Acct.  To  Profit  &  Loss 

1356 

26 

(7) 

Cr.  by  Inventory 

2909 

01 

30 


BOOKKEEPING  AND   COST  ACCOUNTING 


In  the  ordinary  systems  the  same  seven  original  entries 
would  be  made,  but  "Mdse."  would  be  used  in  all  instead  of 
Sales,  Sales  Allowances  and  Cash  Discounts;  but  only  one 
transfer  double-entry  would  be  needed,  instead  of  five,  viz., 
Mdse.  To  Profit  and  Loss,  $1362.81 ;  the  four  Trading  account 
double  entries,  or  eight  ledger  postings,  being  eliminated. 
The  increased  complexity  due  to  having  these  extra  accounts 
in  the  ledger,  with  no  compensating  advantages,  is  a  good 
reason  for  their  exclusion  from  the  ledger. 

Reserve  for  Bad  Debts  and  Reserve  for  Depreciation  on 
Store  and  Warehouse  may  just  as  well  be  left  out  of  the  Ledger 
and  taken  care  of  by  a  Profit  and  Loss  adjustment  statement 
appended  to  the  Balance  Sheet.  In  the  Commission's  sys- 
tem these  reserve  accounts  are  handled  as  follows: 

4.  Reserve  for  Bad  Debts:  Credit  with  an  estimated  amount, 
based  on  charge  sales,  sufficient  to  provide  for  losses.  Charge 
with  the  balances  of  personal  accounts  when  hope  of  collection 
is  abandoned. 

37.  Losses  from  Bad  Debts:  Charge  with  the  amount  that  has 
been  reserved  for  Bad  Debts  (4). 

9.  Reserve  for  Depreciation  on  Store  and  Warehouse:  Credit 
this  account  with  the  amount  of  depreciation  on  store  and  ware- 
house and  charge  the  amount  to  Rent  Income  (No.  44). 


Taxes  and  insurance   appear   in    the   following   Journal 
entries: 


The  Journal  entries 

are: 

Losses  from  Bad  Debts 

To 

Reserve  for  Losses  from  Bad  Debts 

33  56 

Profit  &  Loss 

To 

Losses  from  Bad  Debts. 

33  56 

Rent  Income 

To 

Reserve  for  Dep'n  on  S.  &  W. 

26  98 

Rent 

To 

Rent  Income 

71  .25 

Profit  &  Loss 

To 

Rent 

71.25 

The  result  is  to  decrease  the  credit  balance  of  Profit  and 
Loss  account  by  $33.56  plus  $26. 9S  and  put  these  amounts  to 
the  credit  of  the  two  Reserve  Accounts.  The  same  result 
can  be  accomplished,  for  all  practical  purposes,  with  less  book- 
keeping, by  leaving  these  accounts  out  of  the  ledger,  and 
making  a  statement  concerning  them  in  the  Balance  Sheet. 

The  pamphlet  of  the  Commission  says:  "  No  merchant 
can  be  said  to  be  managing  his  business  properly  unless 
adequate  provision  is  made  for  depreciation." 

Adequate  provision  for  depreciation  consists  first  in  selling 
the  goods  at  such  an  advance  over  cost  and  expenses  that  a 
surplus  may  be  built  up,  out  of  which  depreciation,  when  it 
takes  place,  may  be  provided  for,  and  second,  in  not  distrib- 
uting this  surplus  in  the  form  of  dividends  to  such  an  extent 
as  will  deplete  it  below  a  proper  reserve  for  depreciation. 
Whether  or  not  the  portion  of  this  surplus  that  is  kept  as  a 
reserve  is  credited  to  a  reserve  account  in  the  Ledger  or  is 
kept  in  a  surplus  or  Profit  and  Loss  account  is  merely  a  matter 
of  bookkeeping.  The  financial  condition  of  the  business, 
which  a  bank  may  consider  as  a  basis  for  a  loan,  is  precisely 
the  same  if  the  surplus  account  has  a  credit  balance  of  $5000, 
with  no  reserve  for  depreciation,  or  if  the  credit  balance  is 
$4000  with  $1000  credited  to  a  reserve  account. 

There  is,  however,  an  important  advantage  in  putting  part 
of  the  surplus  into  a  reserve  account;  a  surplus  is  popularly 
supposed  to  be  something  that  ultimately  may  be  divided 
among  the  stockholders,  while  a  reserve  is  a  fund  that  will 
some  day  be  wiped  out  by  actual  depreciation  of  assets.  If  it 
is  kept  as  a  reserve,  stockholders  will  not  expect  it  to  be 
paid  out  in  dividends. 


Prepaid  Insurance                                           To  Cash 

Insurance  on  Stock  and  Store  Equipment  To  Prepaid  Insurance 

Rent  Income,  Insurance                                To  Prepaid  Insurance 

109 
1 
7 

24 
61 
49 

Taxes  on  Stock  and  Store  Equipment       To  Accrued  Taxes 
Rent  Income                                                     To  Accrued  Taxes 

9 

2 
5 

10 

50 
25 

7 

" 

If  the  Insurance  premium  $109.24  was  paid  in  advance  for  a 
year,  and  $9.10  of  it  is  charged  in  the  expenses  for  January,  the 
balance  on  January  31,  $100.14,  is  an  expense  asset  which  is 
decreasing  every  day.  Instead  of  keeping  the  three  accounts, 
Prepaid  Insurance,  Insurance  on  Stock  and  Store  Equipment, 
and  Rent  Income,  open  on  the  Ledger,  the  amount  of  $100.14 
may  be  entered  as  an  expense  asset  and  the  items  $1.61  and 
7.49  as  incurred  or  accrued  expenses  in  a  memorandum 
Profit  and  Loss  adjustment.  In  the  same  way  this  Adjust- 
ment may  contain  Accrued  Taxes  $7.75  as  an  expense  liability 
incurred  and  the  items  $2.50  and  $5.25  as  incurred  expenses. 

Accrued  Interest  Payable,  $19.23,  and  Accrued  Interest 
Receivable,  $0.71,  may  also  be  put  in  the  Profit  and  Loss 
Adjustment,  the  first  as  a  liability  or  credit,  the  second  as  a 
debit,  or  asset.  Miscellaneous  Outside  Income,  $2.00,  re- 
ceived for  use  of  the  telephone  in  the  store,  may  be  treated 
as  income  from  Expense  Account,  offsetting  to  that  amount 
the  rent  of  the  telephone. 

By  removing  all  these  accounts  from  the  Ledger,  Profit 
and  Loss  Adjustment  will  be  as  follows: 


Profit  &  Loss 

Adjustment. 

Dr. 

(Liability) 

Cr. 

(Asset) 

Insurance 

Taxes 

Reserve  for  Bad  Debts 

Reserve  for  Depreciation 

Accrued  Int.  Rec. 

Accrued  Int.  Pay. 

9 

7 
33 
26 

19 

10 
75 
56 
98 

23 

109 
0 

24 
71 

Balance,  Deferred  Credit  to  Profit 
and  Loss 

96 
13 

62 

33 

109 

95 

The  result  of  removing  all  these  accounts  from  the  Ledger 
is  shown  on  page  32. 

Here  on  one  page  is  the  whole  record  of  every  essential 
fact  of  the  month's  business  that  is  shown  in  the  Commis- 
sion's system  of  45  ledger  accounts,  18  journal  entries  with 
70  items,  monthly  summary,  profit  and  loss  statement,  and 
balance  sheet.  -The  only  items  missing  are  the  five  separate 
accounts  which  are  here  condensed  into  one  Real  Estate 
and  Equipment  Account,  and  Trading  Account.  There  are 
onlj'  13  accounts  in  the  combined  Journal-Ledger  and  10  in 


ACCOUNTS  FOR   RETAIL  MERCHANTS.    SELLING   PRICES.    TURNOVER 


31 


the  Expense  Distribution,  and  7  items  in  the  Deferred  Profit 
and  Loss  Charges  and  Credits.  There  are  only  15  entries 
in  the  Journal-Ledger  and  12  in  the  Expense  Distribution,  a 
total  of  27,  figures  only,  as  compared  with  140  items,  writing 
and  figures,  in  the  Commission's  system. 

Twelve  sheets  with  proper  rulings  and  printed  headings  in 
this  system  contain  the  record  of  a  whole  year's  business  in 
sufficient  detail  for  the  manager's  or  owner's  needs  as  far  as 
the  general  course  of  the  business  is  concerned.  If  minor 
details  are  wanted  for  any  purpose  the  bookkeeper  can  easily 
supply  them  by  reference  to  the  books  of  original  entry  from 
the  footings  of  which  the  Journal-Ledger  entries  were  made. 
The  student  is  advised  to  make  a  thorough  and  sys- 
tematic study  of  this  chapter.  He  should  provide  himself 
with  blank  books  with  journal  and  ledger  rulings,  and  after 


first  journalizing  and  then  posting  the  assets  and  liabilities, 
as  shown  in  the  Trial  Balance  of  January  1,  he  should 
journalize  the  transactions,  as  in  the  journal  entries  on 
page  25,  verifying  the  transfer  and  profit  and  loss  entries, 
and  post  the  entries  into  his  ledger.  A  trial  balance  of  the 
ledger  should  then  be  made,  and  when  it  is  found  to  bal- 
ance, the  Monthly  Summary  of  Business,  Balance  Sheet  and 
Profit  and  Loss  Statement,  January  31,  should  be  derived 
from  the  ledger  and  put  into  the  forms  given  by  the  Trade 
Commission.  The  student  should  then  study  carefully  the 
"  suggested  improvements,"  page  28,  and  repeat  the  work, 
using  the  combined  journal-ledger  system,  and  obtain  the 
final  results  in  the  forms  given  on  page  32.  He  will  thus  be 
enabled  to  satisfy  himself  as  to  the  advantages  of  the  new 
system. 


Monthly  Expense  Ledger 


Credit  Accounts 

Charge  Accounts 

Cash 

15 

Accts. 
Payable 

18 

Wages  and 

Salarie. 

5 

Prepaid 
Insurance 

19 
Accrued 

T:i  vs 

37 

Res.  for 

Bad  Debts 

9 

Res.  for 
Dep'n. 

41 

Profit 
and  Loss 

Total 
Expense 
Char^"  * 

26   27 

14 
3 
8 

22 

00 
75 
08 
03 

25 
177 
102 
269 

00 
33 
67 
00 

39 

211 

110 

291 

4 

00 

28  29  30 

30 

00 

08 

31,  32 

75 

33.  34 

03 

35,  36 

Tax.  and  Ins.  on  Equip. 

1 

61 

2 

50 

1 1 

37 

33 

56 

33      56 

38 

26 
15 

79 
01 

26 
71 

79 

44 

7 

49 

5 

25 

26 

98 

16 

52 

25 

Total  Credits 

89 

66 

30 

00 

574 

00 

9 

10 

7 

75 

33 

56 

26 

98 

16 

52 

787 

57 

Monthly  Combined  Journal-Ledger 


Charge  Accounts 

Credit  Accts.* 

J3 
03 

03 

o 
1 

u 
K 
03' 

o 

3 

to 

a 

a 

t. 

5 

<: 

6 

*oi 

23 

o 
< 

DO 

0) 
e3 
(B 

24 

S3 

25 

-a 
a 

«   »> 

a.    ol 

•c   « 

■3  fi 

26-33 

03 

a 

c. 

W 

27-39 

60 
c 

H 
40 

to 
03 

0 

a 
42 

Q 

03 

03 
O 

43 

45 

a 

03     ^ 

to    O 
O   hJ 

40 

O 

o 
Eh 

1 

Cash 

109 

24 

492 

00 

89 

5( 

J6 

10 
98 
00 

75 

690  9(1 

3 

2 

00 

2 

33 

9 

26 

2789 

19 

7 

576 

4659 

2 

2759 

574 

787 

4659 

19 

6 

2 

1381 

19008 

on 

4 

Res.  for  B.  D.. 

33 

9 

26 

30 

56 

5 

10 

9 

■Depn.  S.  &  W 

98 

15 

2759 

1,7 

67 

17 

Acct.  Int.  Pay. 

19 

V 

M 

19 

7 

7S 

22 

57£ 

'. 

<i7 

23 

1301 

(>'. 

3358 

31 

96 

24 

OC 
67 

mi 

25 

Mdse.  Purchd  . 

2759 

(,7 

26-33 

574 

OC 

III) 

27-39 

787 
17 

ii' 

57 

40 

4659 

■>h 

96 

42 

Interest 

Cash  Discts...  . 
Misc.  Out.  Inc. 

1 
6 

2 

43 
55 
00 

0 

71 

M 

43 

V", 

45 

no 

41 

16 
787 

52 

57 

1356 

2(; 

19 

23 

6 

5! 
55 

2 

00 
00 

1381 

33 

11 

Total  Debits. 

63 

31 

24 

71 

')(, 

2 

lid 

2759 

(,; 

in 

1311 

3358 

109 

0 

4659 

492 

4117 

6 

2 

13 

[  The  titles  of  debit  accounts  may  be  put  in  this  column  and  the  titles  of  credit  accounts  at  the  head  of  the  columns  of  figures  if  desired. 


32 


BOOKKEEPING  AND   COST  ACCOUNTING 
The  Condensed  Accounting  System 

Combined  Journal-Ledger,  Januart,   1916 


Credit  Accounts 

Charge  Accounts 

to 

ca 
O 

1 

K 

DO 
U 

o 
2 

*CJ 

pfj 

CO 

o 

< 

3 

CO 
OJ 

o 
5 

CD 

O 

< 

6 

c 

a    » 

s  t 

■r    cj 

CO 
7 

0) 
10 

s 

9 

0J 

m 
a 

CJ 

n 
K 
10 

4* 

tn 
cj 

0J 

C 

II 

G 

OJ      ^ 

*j    cn 

ta    o 
o  ,-i 

£ 
12 

o 

CJ 

o 
13 

13 

0J 

C 
t3 

Eh 

1 

Cash 

1308 

20 

2 

Ol' 

1 

43 

1311 

2 

3 

3358 

31 

3385 

1| 

5 

6 

7 

492 

00 

492 
4124 

802 

1 

1364 

00 

9 

Mdse 

2 

00 

2759 
30 

67 
00 

1362 

81 

10 

196 

)( 

574 

00 

11 

1 

4! 

563 

!4 

12 

800 

90 

13 

Total  Credits 

690 

90 

— 

2 

on 

— 

2789 

67 

574 

00 

4666 

51 

802 

'in 

1 

43 

1364 

24 

563 

34 

11454 

99 

Balance  Sheet 


Jan.    1 

Transactions 

Jai\ 

.  31 

Dr. 

Cr. 

Dr. 

Cr. 

Dr. 

Cr. 

1 

Cash 

990 

191 

162 

7,218 

94 
84 
50 

75 

1,311 

63 

690 

90 

1,611 

191 

3,518 

7,218 

67 
84 
81 
75 

2 

3 

3,358 

31 

2 

00 

4 

Real  Estate  &  Equip 

2,110 

4,170 

82 

1,250 

5 

2,110 
1,381 

50 

05 

50 

6 

2,789 
574 

67 
00 

72 

7 

Salaries  and  Wages 

492 

00 

00 

8 

1,250 

00 

00 

9 

3,451 

09 

4,124 

802 

1 

1,364 

48 
90 
43 
24 

4,666 

802 

1 

1,364 
563 

51 
90 
43 
24 
34 

2,909 

06 

10 

11 

12 

13 

7,273 

57 

7,836 

91 

12,015 

12 

12,015 

12 

11,454 

99 

11,454 

99 

15,450 

13 

15,450 

13 

Expense  Distribution 

Cash 

A/cs.  Pay 

Sal. &  Wages 

Total 

Buying  Exp. 

14 

00 

25 

00 

39 

00 

Selling  Exp. 

3 

75 

30 

00 

177 

33 

211 

08 

Delivery  Exp. 

8 

08 

102 

67 

110 

75 

Office  Exp. 

22 

03 

269 

00 

291 

03 

Miscel.  Exp. 

26 

79 

26 

79 

Repairs 

15 

01 

15 

01 

Insurance 

109 

24 

109 

24 

Total 

198 

90 

30 

00 

574 

00 

802 

90 

Deferred  Pro6t  &  Loss  Items 


Cr.    Prepaid  Ins.  Charged  to  Expense 
Less  Insurance  Accrued 
(Bldgs.  7.49;  Stock,  1.61) 

19 
7 

33 
26 

23 
75 

56 

98 

109 
9 

24 

10 

Accrued  Int.  Rec. 

100 
0 

14 
71 

Dr.  Ace.  Int.  Pay. 
Ace.  Taxes 

(Bldgs.,  5.25;  Stock,  2.50) 
Res.  for  Bad  Debts 
Res.  for  Dep'n. 

100 
87 

85 
52 

Bal.  to  Cr.  of  P.  &  L. 

13 

33 

ACCOUNTS  FOR  RETAIL  MERCHANTS.    SELLING   PRICES.     TURNOVER 


33 


MERCHANTS'   SELLING   PRICE 

A  merchant  in  order  to  price  his  goods  properly  must  know  his 
overhead  expenses.  With  a  proper  arrangement  of  his  accounts 
the  percentage  of  overhead  m^y  be  readily  obtained.  Goods  not 
priced  high  enough  to  cover  this  percentage  are  actually  sold  at  a 
loss.  The  most  convenient  way  of  arriving  at  the  proper  per- 
centage to  add  to  the  first  cost  of  goods  for  overhead  is  to  use 
the  average  ratio  of  operating  expenses  to  net  sales  covering  a 
past  period.  For  instance,  if  a  merchant's  annual  sales  for  the 
last  fiscal  year  were  $'25,000  and  the  expense  of  conducting  his 
business  was  $5000  his  overhead  was  20  per  cent.  By  adding 
the  desired  percentage  of  profit  on  sales  to  this  overhead  per- 
centage and  deducting  from  100  gives  the  percentage  of  invoice 
cost  to  selling  price.  The  invoice  cost  of  an  article  divided  by 
this  percentage  gives  the  selling  price.  (Federal  Trade  Com- 
mission's Pamphlet,  p.  6.) 

The  system  above  described  for  fixing  selling  prices  is 
rarely,  if  ever,  used  in  actual  business,  and  in  any  business 
dealing  with  a  large  variety  of  goods  it  is  practically  impos- 
sible. The  statement  that  "goods  not  priced  high  enough  to 
cover  the  percentage  (of  overhead)  are  actually  sold  at  a 
loss  "  may  be  far  from  true. 

Suppose  that  a  month's  business  of  a  certain  grocery  store 
showed  the  following  results : 


Invoice 

SellingPrice 

Gross  Profit 

Turn- 

Sold 

over 

of 
Goods 

Cost 
per  lb. 

Amt. 

Per  lb. 

Amt. 

Per  lb. 

Amt. 

% 

1000  lbs.  Sugar 

H 

$50 

s.H 

$55 

0.5s1 

$5 

10 

24 

200  lbs.  Tea  A 

35 

70 

40 

80 

5 

10 

14.3 

44 

100  lbs.  Tea  B 

40 

40 

50 

50 

10 

10 

25 

12 

50  lbs.  Tea  C 

60 

30 

80 

40 

20 

10 

33 

6 

1350 

190 

225 

35 

18.4av 

Other  goods 

12150 

1710 

2150 

440 

25.7 

13500  total 

1900 

2375 

475 

25 

10 

Overhead.  Rent,  taxes,  insurance,  interest,  proprietor's  services,  clerk 
hire,  cartage,  stationery,  postage,  shortage,  heating,  lighting,  depreciation, 
per  month,  $300  =  1 5.8%  of  Invoice  Cost. 

Net  profit  per  month,  $175. 

According  to  the  statement  quoted  above  the  sugar  and 
the  tea  A  "  are  actually  sold  at  a  loss,"  for  the  selling  price  is 
only  10  per  cent  and  14.3  per  cent,  respectively,  above  the 
first  cost,  while  the  average  overhead  on  all  the  goods  handled 
is  15.8  per  cent. 

The  fact  is  that  it  is  not  correct  to  consider  the  overhead  as 
an  amount  which  must  be  uniformly  distributed  over  all  the 
goods  sold  as  a  percentage  on  their  cost.  The  only  reason 
why  overhead  is  distributed  on  a  uniform  percentage  of  value 
basis  is  that  that  is  an  easy  way  to  do  it.  The  actual  relation 
between  the  overhead  and  the  cost  of  goods  is  a  variable  one, 
depending  on  the  cost  of  handling,  which  varies  with  the 
bulk,  weight,  depreciation,  shortage,  etc.,  and  with  the  turn- 
over or  rapidity  with  which  the  goods  are  sold.  If  the  average 
amount  of  sugar  purchased  at  one  time  is  500  lbs.  and  1000  lbs. 
is  sold  per  month  the  goods  turnover  is  24  times  a  year.  If 
tea,  C,  is  bought  in  100-lb.  lots  and  only  50  lbs.  is  sold  per 
month  its  turnover  is  6  times  per  year.     The  selling  price  of 


sugar  has  no  necessary  relation  to  the  average  overhead  of 
15.8  per  cent,  for  the  overhead  properly  belonging  to  it  may 
be  only  5  per  cent.  The  selling  price  of  the  sugar  and  the 
cheaper  tea  may  be  fixed  very  low  because  the  turnover  is 
rapid,  because  the  depreciation  and  shortage  are  small,  and, 
because  it  is  advisable  to  have  some  goods  sold  at  a  small 
profit  in  order  to  attract  customers  to  the  store  who  may  be 
induced  to  buy  other  classes  of  goods  on  which  there  is  a 
large  profit. 

Factory  Cost  and  Selling  Price.  Many  authors  publish 
diagrams  illustrating  the  following  formulas: 

1.  Cost  of  Material+Cost  of  Direct  Labor  =Prime  Cost. 

2.  Prime  Cost -(-Departmental  and  General  Expense  = 
Factory  Cost. 

3.  Factory  Cost -(-Selling  Expense  =  Total  Cost  to  Make 
and  Sell. 

4.  Total  Cost  to  Make  and  Sell + Profit  =  Selling  Price. 

These  formulas  for  finding  the  selling  price  may  be  use- 
ful in  some  few  lines  of  manufacturing  business,  but,  in 
general,  only  the  first  two  lines  of  them  are  of  any  value. 
The  factory  cost,  or  what  it  costs  to  make  an  article, 
can  be  determined  from  the  factory  cost  records  provided 
the  burden,  or  departmental  and  general  factory  expense,  is 
properly  distributed,  and  in  many  cases  it  may  be  pre- 
determined, but  the  selling  expense  is  generally  such  an 
uncertain  quantity  that  both  it  and  the  profit  (or  loss)  are 
not  determinable  until  after  the  goods  are  sold  and  paid  for. 
Much  of  the  cost  of  selling  an  article  this  year  was  incurred 
and  charged  to  selling  expense  last  year,  and  much  of  this 
year's  expenditures  of  the  sales  department  will  not  result  in 
sales  until  next  year.  The  selling  price  is  not  always  fixed 
by  the  manufacturer,  it  is  more  often  fixed  by  competition, 
or  by  the  purchaser. 

Costs 


Factory  Costs 

Selling  Costs 

Selling  Price 

Profits  or 
Losses 

Direct  Material  1  „  .       „     , 
_.       ,  _    .            \  PrimeCost 
Direct  Labor       > 

Proportion    of    Fi- 
nancial   and    Ad- 

Gross,     less 
Discounts 

(See  below) 

ministration  Costs 

and  Allow- 

Indirect Material 

ances  =  Net 

Indirect  Labor 

Advertising 

Price 

Other  Factory  Exp. 

Salesmen 

Proportion    of    Fi- 

Burden  Branch  offices 

nancial   and   Ad- 

Other    selling    ex- 

minis t  r  a  t  i  o  n 

penses 

Costs 

FORMULAS  FOR  PROFITS  AND  LOSSES 

Net  Selling  Prices  -  (Factory  Cost -(-Selling  Cost)  =  Profit. 

(Factory  Cost  -(-Selling  Cost)  —Net  Selling  Price  =  Loss. 

When  the  selling  price  is  not  fixed  by  the  market  after 
the  goods  are  made,  but  is  a  matter  of  contract  between 
maker  and  buyer,  then  the  formula  may  be 

Factory  Cost -(-Selling  Cost-f  Profit  =Selling  Price. 

In  many  factories  the  Prime  Cost  only  is  determined  for 
each  item  of  product,  Direct  Labor -I- Material,  and  no  attempt 


34 


BOOKKEEPING  AND   COST  ACCOUNTING 


is  made  to  distribute  the  burden  over  the  several  products. 
Monthly  totals  of  labor,  material,  and  actual  burden  are 
kept. 

It  is  better  to  make  no  distribution  than  to  distribute 
by  a  wrong  method. 

TURNOVER 

The  rapidity  of  the  turnover  is  a  very  important  element  in 
conducting  a  retail  business.  It  is  obvious  that  an  increase  in 
turnover  goes  hand  in  hand  with  an  increase  in  profit.  A  slow 
turnover  may  be  due  to  poorly  selected  stock,  to  overstocking; 
or  to  an  inefficient  selling  organization.  No  effort  should  be 
spared  to  increase  the  turnover  to  its  maximum.  To  ascertain 
the  turnover  divide  the  cost  of  goods  sold  during  the  year  by  the 
cost  of  the  average  stock  carried.  (Federal  Trade  Commission's 
Pamphlet,  p.  6.) 

The  turnover  referred  to  in  the  above  extract  is  only  one 
kind  of  turnover,  that  of  the  goods  handled.  Another  equally 
important  turnover  is  that  of  capital  invested.  In  the  case 
of  the  sugar  sold  by  the  grocery  store,  if  1000  lbs.  is  sold  each 
month  and  500  lbs.  is  purchased  every  half  month,  the  turn- 
over is  24  if  we  consider  that  500  lbs.  is  turned  over  24  times 
a  year,  and  this  is  the  usual  method  of  computing  goods  turn- 


over, but  according  to  the  rule  given  in  the  pamphlet,  as 
quoted  above,  we  might  figure  that  the  average  stock  carried 
was  half  of  a  single  purchase,  or  250  lbs.  (assuming  that  a 
new  barrel  could  be  obtained  on  the  same  day  the  old  one  was 
emptied)  costing  $12.50  and  this  divided  into  $600,  the  cost  of 
the  sugar  sold  during  the  year,  gives  a  turnover  of  48. 

The  turnover  of  capital  is  an  entirely  different  matter.  If 
a  grocer  could  buy  a  barrel  of  sugar  for  $25  spot  cash  and  sell 
it  in  two  weeks  for  $27.50,  collecting  all  the  money  before  he 
needed  to  buy  another  barrel,  his  cash  capital  invested  in 
sugar  would  be  $25,  and  if  he  sold  24  barrels  a  year,  costing 
$600,  his  turnover  of  capital  would  be  the  same  as  the  goods 
turnover,  or  24  times.  But  if  he  gave  his  customers  three 
months'  credit  on  the  average  he  would  have  invested  in 
sugar  and  in  customers'  accounts  for  sugar  $150,  making  the 
turnover  only  4  times  a  year,  and  this  figure  would  be  still 
further  reduced  by  reason  of  the  additional  capital  required 
for  equipment  and  for  expenses. 

Quick  Turnover.  There  is  nothing  so  vitally  important  to  the 
success  of  the  business,  in  every  direction,  as  the  quickening  of 
shop  production  and  the  possibility  thus  secured  of  making  a 
quicker  turnover  of  working  capital  invested. — C.  U.  Carpenter. 


CHAPTER  V 
FACTORY  ACCOUNTING 


The  first  principle  in  modern  factory  accounting  is  that  in 
the  general  books  of  the  Company  the  operations  of  the  fac- 
tory shall  be  treated  as  if  they  were  tKose  of  a  separate  busi- 
ness, belonging  to  outside  parties.  An  account  may  be  opened 
in  the  general  books  called  Factory  Plant  (or  Real  Estate  and 
Equipment),  representing  the  Company's  investment  in  the 
land,  buildings,  machinery  and  other  permanent  equipment 
of  the  factory,  and  another  account,  which  may  be  called 
Factory  Operation  (or  Manufacturing  Account),  is  used 
to  record  the  transactions  between  the  factory  and  the 
general  office.  This  account  is  charged  with  cash  sent  to 
the  factory,  with  bills  paid  by  the  genera!  office  on  account  of 
the  factory,  and  with  all  charges  properly  made  against 
the  factory  for  interest  on  the  total  investment  in  it  (which 
includes  both  the  cost  of  the  plant  itself  and  that  of  its  oper- 
ation) for  insurance,  taxes  and  depreciation,  and  for  such 
portion  of  the  salaries  of  general  administrative  officers  as  is 
rightly  charged  to  the  cost  of  operating  the  factory  and  not  to 
the  cost  of  the  selling  or  financial  departments.  The  monthly 
entries  on  the  debit  side  of  the  Factory  Operation  Account 
will  generally  include  the  following: 

GENERAL  BOOKS,  FACTORY  OPERATION  ACCOUNT 

Dr.  To  Cash — for  payroll  and  petty  cash  expenses. 

To  Accounts  Payable — for  invoices  of  goods  purchased. 
To  Interest  Earned,  for  interest  on  investment  in  factory. 
To  Insurance  and  Taxes,  for  tV  of  annual  insurance  and 

taxes. 
To  Reserve  for  Depreciation,  for  yV  of  estimated  annual 

depreciation. 
To  Administration   Expenses,  for  proportion  chargeable 

to  factory. 

The  account  will  be  credited  each  month  "By  Mdse." 
for  the  value  of  the  products  shipped  from  the  factory, 
and  By  Factory  Plant  for  the  value  of  any  additions  or 
"betterments"  that  have  been  made  by  the  factory  to 
the  building  or  its  equipment. 

What  is  the  meaning  of  the  word  "value"  in  this  connec- 
tion? The  answer  to  this  question  involves  all  the  difficulties 
of  the  theory  and  practice  of  factory  accounting  and  cost- 
keeping.  For  any  particular  business  the  method  of  fixing 
the  value  to  be  used  in  crediting  the  factory  for  its  shipments 
of  goods  should  be  determined  at  a  conference  between  the 
management  and  the  chief  accountant.  Whatever  method 
be  adopted  it  should  be  adhered  to  until  very  important 
reasons  are  found  for  changing  it. 

The  "value"  to  be  credited  may  be  either  "factory  cost"  or 
"cost  of  sales."  Factory  Costs  may  be  either  "actual" 
(so-called),  "recorded"  or  "normal"  costs;  "Cost  of  Sales" 


may  be  catalogue  list  price  less  a  certain  percentage  to  cover 
discounts  from  list  and  estimated  costs  of  selling,  adminis- 
tration and  estimated  profit,  or  actual  selling  prices  less  a 
fixed  percentage  or  a  percentage  varying  with  business  con- 
ditions, or  it  may  be  the  total  of  the  charges  against 
Factory  Operation  Account  during  a  month  (or  other  fiscal 
period)  plus  the  decrease  (or  minus  the  increase)  of  the 
inventory  during  that  period. 

Continuous  Product,  Single  Product.  The  simplest  sys 
tern  is  one  that  is  often  used  in  a  continuous  process  factor}', 
making  a  single  product,  such  as  pig  iron,  or  paper  of  one 
grade,  or  cotton  goods  of  one  grade,  in  which  the  total  expend- 
iture of  the  factory  in  a  month  is  divided  by  the  number  of 
tons  or  yards  to  obtain  the  inventory  cost  per  ton  or  per  yard 
for  that  month;  then  the  factory  is  credited  at  the  inventory 
cost  for  all  the  goods  shipped.  In  this  way  Factory  Operat- 
ing account  shows  neither  a  profit  nor  a  loss.  The  balance  of 
the  account  represents  the  inventory  value  of  the  product 
that  has  not  been  shipped,  plus  the  inventory  value  of  raw 
material  on  hand  and  that  of  the  "work  in  process"  or  un- 
finished product.  The  system  has  the  merit  of  simplicity 
and  of  low  cost  for  bookkeeping,  but  it  may  lead  to  absurd 
results  as  to  unit  costs  when  the  product  of  any  month  is  low, 
or,  possibly,  nothing,  the  factory  being  shut  down  for  repairs 
or  on  account  of  a  strike,  or  lack  of  raw  material,  or  lack  of 
orders. 

Varied  Products.  In  factories  making  a  variety  of  product 
the  so-called  "actual  cost"  may  be  obtained  by  a  most  elab- 
orate cost  system,  in  which  the  cost  of  every  article  made 
includes  the  cost  for  direct  material,  direct  labor  and  "bur- 
den," the  burden  or  total  indirect  expenditure  for  a  month 
being  distributed  according  to  some  plan,  such  as  the  machine- 
hour  rate  plus  a  "supplementary  rate,"  over  the  product  of 
that  month.  This  method,  like  the  first  one  described,  has 
the  apparent  bookkeeping  merit  of  having  the  factory  show 
neither  a  profit  nor  a  loss,  but  it  also  has  the  demerit  of  giving 
useless  and  absurd  cost  figures  when  the  factory  is  running 
below  its  normal  rate. 

Recorded  Costs  may  include  the  actual  expenditures  for 
direct  labor  and  material,  or  "prime  cost,"  plus  a  burden 
figure  which  may  be  a  fixed  percentage  on  labor  or  on  material 
or  on  prime  costs,  or  an  arbitrary  figure  per  unit  of  product 
which  is  estimated  to  be  sufficient  to  cover  the  average  burden 
during  the  year.  This  is  a  satisfactory  method  from  a  book- 
keeping standpoint,  but  it  may  lead  to  erroneous  conclusions 
as  to  the  cost  of  some  portions  cf  the  product.  By  this 
method  the  books  may  show  that  the  factory  makes  a  profit 
or  a  loss  according  to  whether  the  total  indirect  expenses  for  a 
year  are  less  than  or  greater  than  the  burden  which  has  been 
charged  against  the  cost  of  the  several  products. 


35 


36 


BOOKKEEPING  AND   COST  ACCOUNTING 


Normal  Cost  includes  the  sum  of  direct  labor  and  material 
or  prime  costs,  and  a  standard  burden  charge  on  each  item  of 
product  which  is  made  by  a  careful  estimate  of  the  machine- 
hour  rate  which  should  be  charged  against  each  machine, 
work-bench,  assembly  floor,  or  other  "productive  center," 
such  that  the  total  of  such  charges  to  cost  of  product  during  a 
year  of  normal  business  shall  approximate  the  total  indirect 
expenses  of  the  factory  for  such  a  normal  year.  In  a  year  of 
brisk  business  the  factory  will  show  a  profit  equal  to  the  excess 
of  the  sum  of  all  the  burden  charges  made  against  the  cost  of 
products  over  the  charges  against  burden  account  or  the  total 
yearly  indirect  expenses.  In  a  year  of  depression,  when  the 
factory  is  running  below  its  normal  rate,  or  in  a  year  when  it  is 
badly  managed  so  that  a  large  part  of  the  machinery  is  idle 
from  lack  of  work  for  it,  or  the  indirect  expenses  are  unduly 
large,  the  factory  will  show  a  loss  equal  to  the  Unearned 
Burden,  or  the  excess  of  expenses  over  the  sum  of  the  burden 
charges. 

Different  Kinds  of  Industries 

1.  Industries  with  continuous  processes;  uniform  product 
with  uniform  specifications;  single-purpose  machines;  uniform 
operations;  simple  routing.  Illustrated  by  the  manufacture  of 
paper  and  pulp. 

2.  Industries  with  non-continuous  processes;  uniform  product 
with  varying  specifications;  single-purpose  machines;  uniform 
operations;  simple  routing.  Illustrated  by  the  manufacture  of 
envelopes,  books,  and  handkerchiefs. 

3.  Industries  with  non-continuous  processes,  varying  products 
with  varying  specifications;  multiple-purpose  machines;  vary- 
ing operations;  complex  routing.     Illustrated  by  machine  shops. 

From  a  lecture  on  "  Scientific  Management,"  by  H.  S.  Person, 
Ph.D.,  Director  Amos  Tuck  School  of  Administration  and 
Finance,  Dartmouth  College,  President  of  the  Taylor  Society. 


Company  or  Private  Ledger  of 

Resources. 


a  Manufacturing  Business 

Liabilities 


1. 

Cash. 

(Including  Capital  Stock  and 

2. 

Accounts  Receivable 

Surplus  and  Reserves.) 

3. 

Bills  Receivable. 

1. 

Capital  Stock. 

4. 

Merchandise. 

2. 

Bonded  Debt. 

5. 

Office  Fixtures. 

3. 

Surplus. 

6. 

Factory  Plant, 

4. 

Reserves  for 

including 

Bad  Debts, 

Land, 

Depreciations,  etc. 

Buildings, 

5. 

Accounts  Payable. 

Permanent  Equipment. 

6. 

Bills  Payable. 

7. 

Factory  Operating. 

7. 

Accrued  Taxes 

Covers    all    investment    in 

and  Insurance. 

the  factory  except  that 

8. 

Earned  Interest. 

charged  to  plant- 

Charged  to  Factory. 

8. 

Deferred  charges. 
Includes   taxes   and   insur- 
ance paid  in  advance  but 
not  yet  charged  to  Fac- 
tory or  other  accounts. 

9. 

Outside  Investments. 

Subdivision  of  Total  Expenditure  for  Factory  Operations 

On  Company's  General  Books 

Charge  Factory  with  all  money  sent  to  factory.  Credit 
Cash.  Charge  Factory  with  all  purchases  for 
account  of  factory.  Credit  Accounts  Payable 
or  Cash. 


Charge  Factory  once  a  month  with  its  monthly  propor- 
tion of  the  yearly  expense  for  Interest,  Taxes, 
Insurance,  Depreciation.  Credit  Interest 
charged  to  Factory,  Taxes,  Insurance,  Reserve 
for  Depreciation. 

Credit  Factory  with  all  goods  shipped  by  factory  or  put 
into  warehouse  on  Company's  account. 

On  Factory  Books 

(a)  Credit  Co.  with  all  values  received  from  Co. 

(6)  Charge  Co.  with  all  values  delivered  to  Co. 

(a)  Charge  Stores  with  material  received. 

Labor  with   payroll   money  received  and 
paid  out  on  ace.  of  wages  and  salaries 
Cash  with  other  money  received  from  Co. 
Burden  with  the  monthly  charges  made  by- 
Co.  for  interest,  insurance,  etc. 

(6)  Credit  Finished  Product,  Warehouse,  or  Stores  with 
goods  shipped. 

Inter-departmental  Accounts  in  Factory 

Charge  Accounts 

Work  in  Process  Cr.  Labor,  Stores,  Burden,  for  productive 

work. 
Stores  Cr.  Work  in  process,  for  material  returned 

from  shop. 
Burden  Cr.  Labor,  Stores,  Burden,  for  work  done 

by  departments  not  directly  chargeable 

to  Work  in  process. 

Burden  Acct.  is  subdivided  into  as  many  departmental 
divisions  as  may  be  found  desirable,  such  as  power  plant, 
blacksmith  shop,  repair  shop,  etc. 

Labor  may  be  divided  into  Direct  and  Indirect  Labor 
(sometimes  but  erroneously  called  Productive  and  Non- 
productive). Direct  Labor  is  that  which  is  expended  upon 
the  raw  material  converting  it  into  finished  material,  and 
Indirect  Labor  is  that  which  is  employed  in  supervision  or  in 
keeping  the  factory  running  and  is  not  directly  chargeable  to 
any  particular  part  of  the  product. 

The  Factory  Books.  The  following  is  a  skeleton  of  the 
principal  factory  accounts.  They  may  be  subdivided  into 
departments,  processes,  or  classes  of  product  as  desired, 
according  to  the  nature  of  the  business. 


Factory  Accounts: 

Credit  Company  with  all  disbursements  made  by  the  Com- 
pany on  account  of  factory  operations. 
Charge 

Cash  (Factory  Cash) 

Stores 

Burden 

(that  part  of  burden  that  is  paid  for  directly  by  the  Co.'s 
general  office,  such  as  insurance,  taxes,  etc.,  and  charges 
made  by  Co.  against  the  factory  for  Interest,  Reserve  for 
Depreciation,  and  the  proportion  of  business  adminis- 
tration that  is  chargeable  to  factory  operations). 


Credit  Cash,  Stores,  Labor,  Burden,  Work  in  Process. 


FACTORY  ACCOUNTING 


37 


Charge 

Work  in  Process,  for  costs  of  unfinished  products. 
Warehouse,  for  cost  of  finished  products. 
Betterments,  for  cost  of  additions  to  or  improvement  of 
the  factory  property. 


In   these   entries  the   credit  to   Burden  is  the  "  earned 
burden  "  or  "  normal  burden." 


Charge  Company 

Credit  Warehouse,  for  goods  shipped. 

Betterments,   for  cost   of  betterments,  when  they  are 

finished. 
Work  in  Process,  for  outside  work  done  on  Company's 
orders. 


Credit  Cash,  Stores,  Burden,  Labor,  WTork  in  Process. 

Charge 

Cash  for  any  receipts  of  factory  cash  for  sale  of  stores,  or 
of  supplies  which  may  have  been  previously  charged  to 
burden,  or  for  any  cash  received  from  workmen  and 
credited  to  them  or  the  payroll. 

Stores,  with  factory  cash  purchases  of  material  for  stores, 
or  with  labor  expended  on  materials  for  stores,  or  with 
materials  put  in  stores  that  were  previously  charged  to 
burden,  or  to  Work  in  Process. 

Burden,  with  all  expenditures  of  factory  cash  for  general 
factory  expenses,  with  all  indirect  labor  and  indirect 
material.  The  burden  of  one  department  may  be 
credited  and  the  burden  of  another  department  charged 
when  one  department  does  work  for  another,  or  furnishes 
supplies  that  have  been  charged  to  the  department 
burden  of  another  department. 

Labor,  with  payroll  payments  in  cash  or  in  stores  charged 
to  workmen. 


OPENING   A   SET   OF  FACTORY  BOOKS 

The  principle  upon  which  a  factory  accountant  opens  a  set 
of  books  for  factory  operations  considered  as  distinct  from  the 
commercial  and  financial  operations  of  a  company  is  that  the 
factory  owes  to  the  "owner"  of  the  business,  which,  on  the 
factory  ledger,  may  be  be  called  "New  York  Office,"  "Com- 
pany," "A.  B.  Co."  or  "Private  Ledger,"  all  the  net  assets 
of  the  factory  at  their  appraised  valuation,  that  it  credits 
the  "Company"  account  with  these  assets,  and  credits  it 
also  with  everything  it  receives  from  the  Company,  such  as 
cash  for  the  payroll,  material  and  supplies,  the  invoices  for 
which  are  certified  to  the  Company  for  payment,  and  cash 
for  minor  current  expenses,  or  "Petty  Cash,"  and  charges 
it  with  everything  delivered  to  the  Company  or  shipped  to 
the  Company's  customers,  the  bills  for  which  are  to  be  paid 
to  the  Company. 

For  example  the  Company's  Chief  Accountant  may  say 
to  the  Factory  Accountant,  "We  have  had  an  inventory  and 


appraisal  made  of  everything  in  the  factory  on  January  1st, 
the  whole  details  of  which  you  will  find  in  this  schedule,  and 
have  deposited  in  the  local  bank  to  the  credit  of  the  factory 
$1000  as  a  fund  from  which  to  pay  your  minor  current 
expenses.  We  will  send  a  check  for  the  amount  of  the  pay- 
roll every  week,  and  we  will  pay  all  the  bills  which  you 
certify  to  us  for  payment  for  material  purchased.  You  will 
credit  us  with  all  these  items  and  charge  us  monthly  at  the 
'factory  cost'  with  everything  you  send  to  us  or  to  our  cus- 
tomers. What  is  meant  by  'factory  cost'  you  will  find  in 
this  typewritten  'Book  of  Instructions.'  " 

The  Factory  Accountant  then  opens  his  books  with  the 
following  entries: 

In  the  Factory  Cash  Book 
Jan.  I,  1916 


To  Company 


1000 


on 


In  the  Journal 
Jan.  1,  1916 


Sundries         To  Company  as  per  Schedule  of 

Factory  Assets,  Jan.  1 
Real  Estate  (Land  and  Buildings) 
Equipment     (Fixtures,     Furniture,     Power 

Plant,  Machine  Tools,  Small  Tools) 
Material  (Haw  material  for  manufacture) 
Supplies  (Fuel,  Oil,  Waste,  Lumber,  Paper, 

etc.) 
Mfg.  a/c.  (Work  in  progress  in  shops) 
Warehouse  (Finished  goods  ready  for  Ship- 
ment) 
Worked  Material  (Partly  finished  products 
in  stores) 


40,000 

00 

200,000 

80,000 
20,000 

00 
00 

5,000 

10,000 

00 
00 

30,000 

00 

15,000 

00 

00 


After  making  these  entries  the  Management  decides  that 
the  last  five  accounts,  or  the  goods  represented  by  them, 
should  be  subdivided  into  departments  or  into  classes  of 
product,  so  as  to  facilitate  the  determination  of  costs.  Thus 
the  warehoused  goods  might  be  divided  into  four  classes, 
Wl,  W2,  W3,  W4,  the  Supplies  into  SI,  Power-house  Sup- 
plies; S2,  Forge  and  Machine  Shop  Supplies;  S3,  Grinding- 
and  Plating-room  Supplies;  S4,  Shipping-room  Supplies. 
The  Accountant  would  then  determine  the  most  convenient 
way  of  making  these  subdivisions.  He  might  properly  con- 
clude, if  the  business  was  a  large  and  complex  one,  that  in 
order  to  simplify  the  general  factory  books  it  would  be  better 
not  to  subdivide  these  accounts  in  the  Works  Journal  and 
Works  Ledger,  but  to  keep  them  as  controlling  accounts, 
making  the  subdivisions  on  statistical  sheets  or  cards  or 
loose-leaf  books.  To  simplify  the  accounts  still  further,  and 
save  clerical  labor,  he  might  keep  no  account  with  Worked 
Material,  considering  all  partly  finished  goods  as  belonging 
to  Mfg.  Acct.,  and  crediting  that  account  only  as  the  goods 
are  delivered  to  the  warehouse.  Even  Warehouse  Acct. 
may  be  dispensed  with,  the  finished  products  remaining  in 
Mfg.  Acct.  until  they  are  shipped,  when  they  are  charged  to 
Company.  Real  Estate  and  Equipment  may  also  be  omitted 
from  the  Factory  books  and  kept  in  the  Company's  General 
Ledger. 


38 


BOOKKEEPING  AND   COST  ACCOUNTING 


After  the  books  have  been  opened  suppose  that  a  condensed 
summary  of  the  transactions  of  the  factory  in  the  first  month 
is  as  follows: 


Material  purchased,  bills  certified  to  Co.  for  payment 

Supplies  purchased,  bills  certified  to  Co.  for  payment 

Supplies  purchased,  paid  for  out  of  Petty  Cash 

Labor,  including  salaries,  paid  by  Co.  on  pay  rolls 

Labor,  paid  out  of  Petty  Cash 

Material  delivered  from  Stores  to  Shop 

Supplies  used  during  month 

Worked  material,  withdrawn  from  Stores 

Worked  material,  delivered  by  Shop  to  Stores 

Labor  (inc.  salaries)  total  credits  on  Pay  Rolls 

Current  Repairs,  to  tools,  done  in  shop 

New  Equipment  built  in  shop 

Finished  Goods  delivered  in  Warehouse,  at  estimated  "factory 

cost" 
Goods  shipped  from  warehouse,  at  estimated  factory  cost 


5,000 

1,000 

200 

25,000 

200 

10,000 

1,500 

5,000 

6,000 

25,500 

100 

500 

35,000 
40,000 


From  this  summary  the  following  Journal    Entries  would 
be  made. 

January  31,  1916 


Sundries 

To  Company 

31,000 

Material 

5,000 

Supplies 

1,100 

Labor 

25,000 

Mfg.  a/c. 

To  Sundries 

42.000 

To  Material 

10,000 

To  Supplies 

1,500 

To  Worked  M 

iterial 

5,000 

To  Labor 

25,500 

Sundries                 To  Mfg.  a/c. 

41.600 

Worked  Material 

6.000 

Repairs 

100 

Equipment 

500 

Warehouse 

35,000 

Company 

40,000 

To  Warehouse 

40,000 

Besides  the  above  entries  the  following  additional  charges 
would  be  made  to  Mfg.  a/c:  One-twelfth  of  the  estimated 
yearly  interest  on  investment  in  the  factory  and  its  contents, 
and  yearly  taxes  and  insurance,  none  of  which  is  yet  paid, 
7§  per  cent  on  $200,000  =  15,000 -=-12  =$1250.  One-twelfth 
of  the  annual  estimated  cost  for  depreciation,  for  obsoles- 
cence and  for  wear  and  tear  and  extraordinary  repairs, 
$4800,  400 

Minor  repairs  during  the  month,  to  close  Repair  a/c  100 

The  entry  would  be 


Mfg.  a/c.  To  Sundries 

To  Adjustment  of  Interest,  Taxes  and  Insurance 
To  Reserve  for  Depreciation  and  Ex.  Repairs 
To  Repair  a/c 


1250* 
400* 
100 


*  These  two  items  may  be  credited  to  Company  account,  instead  of  to 
the  two  accounts  named. 

The  Cash  Book  entries  may  be  journalized  at  the  end  of 
the  month  (if  they  are  not  posted  directly  from  the  footings 
of  the  columns  of  a  Column  Cash  Book)  as  follows : 


Sundries 
Supplies 
Labor 


To  Cash 


400 


The  entries  of  Jan.  1  and  Jan  31  (and  any  other  entries 
that  may  have  been  made  during  the  month)  are  posted  in 
the  Factory  Ledger,  as  follows: 


Factory  Ledger 
Company 


Jan.  31 


To  Warehouse 


40,000 

Jan.     1 

Jan.     1 

Jan.  31 

By  Cash 
By  Sundries 
By  Sundries 


Jan. 

1 

Jan 

31 

Jan 

31 

To  Company 
To  Company 
To  Cash 


5,000 

1,000 

200 


Jan.  31 


By  Mfg.  a/c. 


Petty  Cash 


Jan.  1       To  Company 


1,000 


Jan.  31 


By  Sundries 


Mfg.  a/c. 


Labor 


Jan    31 
Jan.  31 


To  Company 
Petty  Cash 


25.000 
200 


Jan.  31 


By  Mfg.  a/c. 


Adjustment  of  Int.  Tax  and  Ins. 


Jan.  31 


By  Mfg.  a/c. 


Reserves  for  Depreciation  and  Ex.  Repair 


Jan.  31      By  Mfg.  a/c. 


1,000 

200,000 

31,000 


Real  Estate 

Jan.     1 

To  Company 

40.000 

Equipment 

Jan.     1 
Jan.  31 

To  Company 
To  Mfg.  a  c. 

80,000 
500 

Material 

Jan.     1 

Jan.  31 

To  Company 
To  Company 

20.000 
5,000 

Jan.  31 

By  Mfg.  a/c. 

10,000 

Worked  Material 

Jan.     1     To  Company 
Jan.  31  1  To  Mfg.  a/c. 

15.000 
6,000 

Jan.  31      By  Mfg.  a/c. 

5,000 

Supplies 

1,500 


Jan.     1 
Jan.  31 
Jan.  31 

To  Company 
To  Sundries 
To  Sundries 

10,000 

42,000 

1,750 

Jan.  31 

By  Sundries 

41,600 

25,500 


1,250 


400 


FACTORY  ACCOUNTING 


39 


Factory  Ledger     (Continued) 
Current  Repairs 


Jan.  31 

To  Mfg.  a/c. 

100 

Jan.  31 

By  Mfg.  a/c. 

100 

Warehouse 

Jan      1 

Jan.  31 

To  Company 
To  Mfg.  a  c. 

30,000        Jan.  31 
35,000 

By  Company 

40,000 

Jan 


Trial  Balance  and  Monthly  Statement 

A  trial  balance  and  monthly  statement  of  the  Ledger  for 
1  and  Jan.  31  would  show  the  following: 


Jan.   1 

Balance 

January 

Balance  Jan.  31 

Dr. 

Cr. 

Charge 

Credits 

Dr. 

Bal.  Cr. 

201,000 

Company 

40,000 

31,000 

192,000 

40,000 

Real  Estate 

40,000 

80,000 

Equipment 

500 

80,500 

20,000 

Material 

5,000 

10,000 

15.000 

15,000 

Worked  Mat. 

6,000 

5,000 

16,000 

5,000 

Supplies 

1,200 

1,500 

4,700 

1,000 

Petty  Cash 

400 

600 

10,000 

Mfg.  a/c. 

43,750 

41.600 

12,150 

Labor 

25,200 

25,500 

300 

Adj.  of  Int.  etc 

1,250 

1,250* 

Reserves 

400 

400* 

30,000 

Warehouse 

35,000 

40,000 

25,000 

201,000 

201,000 

156,650 

156,650 

193,950 

193,950 

*  See  footnote  on  page  38. 

ACCOUNTING  CODE  FOR  A  MANUFACTURING  BUSINESS 

The  principal  accounts  in  the  general  books  of  a  manu- 
facturing concern  are  the  following: 


Assets  and  Expenses 

Cash 

Bills  Receivable 

Accounts  Receivable 

Factory,  Real  Estate  and 
Equipment 

Factory  Operating  (or  Manu- 
facturing Acct.) 

Mdse.  (or  Sales  Acct.) 

Administration  and  Selling 
Exp. 

Outside  Investment  (if  any) 


Capital  and  Liabilities 
Capital  Stock 
Bonded  Debt 

Surplus 

Profit  and  Loss 

Bills  Payable 
Accts.  Payable 

Reserve  for  Depreciation 
Other  Reserves  (if  any) 


Besides  these  there  are  other  accounts  which  represent 
assets  or  expenses  if  they  have  debit  balances,  and  liabilities 
or  profits  if  they  have  credit  balances,  such  as  Taxes,  Insur- 
ance, Discount  and  Interest.  Some  accountants  divide 
Taxes  and  Insurance  each  into  two  subdivisions,  for  example, 
Accrued  Taxes,  Prepaid  Taxes,  but  this  is  needless.  If  taxes 
have  been  prepaid,  the  debit  balance  of  the  account  shows 
that  fact;  if  there  is  a  credit  balance  it  represents  the  amount 
of  accrued  taxes,  not  paid,  which  have  been  charged  to  fac- 
tory operating  or  some  other  expense  account. 


The  transactions  and  the  corresponding  journal  and  cash 
book  entries  for  the  last  month  of  a  year  or  other  fiscal  period 
may  be  as  follows: 


Journal  Entries 


Factory  Operating: 

To  Accts.  Payable 

10,000 

To  Bills  Payable 

10,000 

To  Taxes  and  Insurance 

300 

To  Res.  for  Depn. 

600 

To  Interest  Chgd.  Facty 

500 

To  Admin.  Exp. 

1000 

Sales  To  Factory  Oper'tg. 


40,000 


Transactions 


Stores  bought  for  factory 


Factory  is  charged  with  its  monthly 
proportion  of  General  Charges 
such  as  interest  on  factory  invest- 
ment, taxes,  etc. 

Goods  were  shipped  from  the  fac- 
tory and  charged  to  Sales  Acct. 
at  factory  cost 

Sales  were  made  on  open  account  ' 
and  on  notes  rec.  J 


Cash  sales  were  made 

Cash   was  received  in   payment  of 

notes  and  accts. 
Cash  rac.  for  interest 
Bills  and  accts.  pay.  were  paid  in 

cash 
Cash  was  paid  for  factory  payroll 
Cash  was  paid  for  administration 

and  selling  expense 
Cash  was  paid  for  insurance,  taxes, 

and  interest 


Transfer  and  Balancing  Entries 

After  the  above  entries  are  made  and  posted  several  trans- 
fer entries  are  needed  before  making  a  balance  sheet. 

At  the  beginning  of  the  month  Administration  and  Selling 
Expense  Accts.  showed  debit  balances  amounting  to  $2000, 
representing  advances  to  salesmen  and  advance  advertising. 
This  together  with  $10,000  charged  during  the  month,  less 
a  credit  of  81000  which  has  been  charged  to  Factory  Operat- 
ing is  now  charged  to  Sales  Account. 

The  credit  balance  of  Sales  Account,  84000,  is  transferred 
to  the  credit  of  Profit  and  Loss. 

Sales 


l  Bills' lice.     1 0^000  I  ToSalea 

4".  000 

Cash  Book  Entries 

Cash  To  Sales 

6,000 

To  Bills  Rec. 

1 2,000 

To  Accts.  Rec. 

40,000 

To  Disct.  and  Int. 

300 

Cr.  By  Accts.  Pay. 

22,000 

Cr.  By  Bills  Pay. 

3,000 

Cr.  By  Factory  Oper'g 

15,000 

Cr.  By  Adm.  Expense 

2,000 

Cr.  By  Sales  Expense 

8,000 

Cr.  By  Insurance 

600 

Cr.  By  Taxes 

400 

Cr.  By  Dis.  and  Int. 

500 

To  Profit  and  Loss 
To  Adm.  Exp. 


4000 
1  1 ,000 


The  factory  reports  that  the  total  cost  of  betterment  work 
for  the  fiscal  period  is  S2000  and  the  general  bookkeeper 
enters  it  as  an  addition  to  the  permanent  assets. 

Factory  R.  E.  &  Equip. 


To  Factory  Operating  2000 


The  factory  reports  the  cost  value  of  spoiled  work  for 
which  no  charge  could  be  made  to  customers  or  to  the  cost 
of  finished  goods;  also  the  loss  of  unearned  burden,  due  to 
idleness. 

Profit  &  Loss 


To  Factory  Operating 


40 


BOOKKEEPING  AND   COST  ACCOUNTING 


A  loss  of  $500  on  Accounts  Receivable,  and  the  debit 
balance  of  Discount  and  Interest,  $1200,  are  charged  to 
Profit  and  Loss. 

Profit  &  I.oss 


To  Accts.  Rec. 
To  Dis   &  Int. 


its  present  value  but  to  transfer  a  part  of  the  credit  balance 
of  Reserve  for  Depreciation  to  Surplus  Account,  making  it 
available  for  dividends. 

Reserve  for  Dep'n 


To  Surplus 


5000 


Interest  charged  to  Factory  shows  a  credit  balance  which 
has  accumulated  during  the  fiscal  period,  and  is  now  credited 
to  Profit  and  Loss  as  part  of  the  profits  of  the  business. 

Interest  Charged  to  Factory 


The  credit  balance  of  Profit  and  loss  is  transferred  to 
surplus  Acct. 

Profit  &  Loss 


To  Profit  and  Loss 


To  Surplus 


The  factory  reports  that  one  of  its  heavy  machines  had  an 
accident  requiring  costly  repairs  which  were  made  in  the 
factory,  and  which  ought  not  to  be  charged  to  current  repairs 
and  thence  to  the  cost  of  finished  goods,  but  to  reserves  for 
depreciation. 

Reserve  for  Depreciation 


A  dividend  of  8  per  cent  on  the  capital  stock  is  declared 
payable  Jan.  15th. 

Surplus 


To  Dividend 


8,000 


To  Factory  Operating 


A  re-appraisal  of  the  factory  machinery  shows  that  it  has  a 
much  higher  value  and  longer  probable  life  on  the  average 
than  was  assumed  in  making  the  appraisal  five  years  earlier, 
when  the  estimated  annual  credit  to  Reserve  for  Deprecia- 
tion was  fixed.  The  management  decides  to  let  Factory 
Real  Estate  and  Equipment  account  stand  on  the  books  at 


When  the  dividend  checks  are  signed  and  mailed,  a 
cash-book  entry  will  close  Dividend  Account,  Cash  being 
credited. 

The  Journal-Ledger  form  of  posting  all  the  above  entries  is 
shown  on  one  sheet,  below,  the  liabilities  at  the  beginning  of 
the  month  being  entered  on  the  upper  line  and  the  assets  in 
the  left-hand  column.  In  this  sheet  the  balances  of  each 
account  both  at  the  beginning  and  end  of  the  month  are 
shown,  as  well  the  transactions  during  the  month. 


COMPANY'S   GENERAL   LEDGER 
Liabilities — Credits 


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Total  Dr. 
(not  incl. 
Balances) 

Total  Bal.  200,000 

100.000 

40.000 

10.000 

15.000 

5.000 

5.000 

5.000 

20.000 

Cash 

25.000 

300 

12.000 

40.000 

6.000 

58.300 

Bills  Rec. 

15.000 

10.000 

10.000 

Accts.  Rec. 

45.000 

39.000 

39.000 

JS  Ins.  &  Taxes 

2.000 

1.000 

1.0OO 

io  Fcty.  R.  E.  &  E. 

50.000 

•2.000 

2.000 

gFcty.  Op'g. 
|  Ad.  &  S.  Exp. 

60.000 

600 

500 

lo.ooo 

10,000 

15.000 

300 

1,000 

37.400 

2.000 

10,000 

10,000 

"  Dis.  &  Int. 

1.000 

500 

500 

g  Res.  for  Dep. 

•5.000 

•1.000 

6.000 

^  Int.  chg'd  Fcty. 

•5.500 

5. 500 

P.  &  L. 

•11,800 

•1.20C 

•500 

•1,000 

14,500 

Bills  Pay. 

3.000 

3.000 

Accts.  Pay. 

22.001 

22.000 

Sales 

•4.00C 

40.000 

•  n.oool 

55.000 

Surplus 

Cr. 

•4000 

8,000 

Total  for  Month  / 

16.800 

8,000 

600 

500 

9.500 

I0.0C0 

10.000 

51.500 

1,500 

12.000 

40.500 

300 

44.000 

12.000 

55.000 

272.200 

Dr. 
Cr. 

8.000 

6,000 

5.500 

14.500 

3.00C 

22,000 

58.300 

500 

10.000 

39.000 

1.000 

2.000 

37.400 

10.000 

55.000 

272.200 

Balances  for  Mo.  < 

8,800 

8,000 

7.000 

1.000 

2.000 

1.501 

6.600 

2.000 

36.900 

Dr. 

Cr. 

Dr 

5.400 

5.000 

5.000 

12.000 

6,800 

700 

2.000 

36.900 

New  Balances     J 

100.000 

40.000 

18,800 

8,000 

9.60C 

12.00C 

8.000 

31.800 

13.000 

43.500 

2.700 

52.000 

53,400 

196.400 
196.400 

*  Transfer  and  balancing  entries. 


FACTORY  ACCOUNTING 


41 


The  Factory  General  Ledger 

From  the  Company's  General  Ledger  entries  for  the  month 
it  is  seen  that  the  debits  and  credits  of  factory  operating 
account  cover  all  the  transactions  of  the  company  with  the 
Factory.  At  the  beginning  of  the  month  the  account  showed 
a  debit  balance  of  160,000.  On  the  Factory  Ledger  this  will 
appear  as  a  credit  to  Company  account,  and  it  will  be  bal- 
anced on  this  ledger  by  debits  to  Stores,  Work  in  Process, 
Warehouse,  and  Factory  Cash,  and  a  credit  to  Labor  account 
for  wages  due  and  unpaid.  The  credits  to  Company  account 
during  the  month,  totaling  837,400,  will  be  debited  to  Com- 
pany General  Charges  (a  subdivision  of  Burden),  $2400, 
representing  the  charges  for  Reserve  for  depreciation,  $600; 
Interest,  $500;  Insurance  and  Taxes,  $300;  and  Adminis- 
tration charges  (proportion  of  officer's  salaries  and  general 
office  expense  charged  to  the  factory,  $1000) ;  also  purchases 
of  material  for  the  factory,  $20,000,  charged  to  Stores  ac- 
count, and  cash  sent  to  the  factory  for  payroll  and  other  cash 
expenditures,  $15,000,  charged  to  Factory  Cash. 

The  charges  to  Company  account,  $44,000,  will  be  balanced 
by  credits  to  Warehouse,  for  goods  shipped,  at  factory  cost, 
$40,000;  to  Spoiled  and  Defective  Work,  which  could  not  be 
charged  to  the  cost  of  finished  goods  in  the  Warehouse,  say 
$400;  to  Burden  account,  representing  unearned  burden, 
which  is  a  loss  due  to  idleness  or  other  cause,  not  properly 
chargeable  to  the  cost  of  finished  goods,  say  $600;  to  Better- 
ments, $2000  for  work  done  on  additions  to  the  factory  equip- 
ment; and  to  Repairs  and  Maintenance  (part  of  Burden) 
$1000  for  extraordinary  repairs,  which  will  be  charged  on  the 
Company's  books  to  Reserve  for  Depreciation.  The  entries 
of  the  above-named  items  might  appear  on  the  Factory 
Journal  and  Cash  Book  as  follows: 


Sundries                    To  Company 

Stores 

Cash 

Burden  (Gen.  charges) 

20,000 
15,000 
2,400 

37,400 

Company                      To  Sundries 

To  Warehouse 

44,000 

40,000 

To  Betterments 

2,000 

To  Burden: 

Spoiled  work 

400 

Unearned  burden 

500 

Extra  repairs 

1,000 

2,000 

Besides  the  above  entries  there  might  be  the   following 
representing  transactions  inside  of  the  factory. 


Sundries                    To  Labor 

18,100 

(Distribution  of  labor  as  per   payroll 

and  Job 

tickets) 

Stores 

300 

Work  in  Process  (Depts.  A.  B.  C.)  • 

10,000 

Auxiliary  Depts.      (Depts.  D.  E.  F.) 

2,000 

Betterments 

600 

Burden  (Supt.,  foreman,  gen.  labor) 

5,000 

Warehouse 

200 

*  Separate  accounts  would  usually  be  kept  for  the  separate  departments. 
The  work  in  process  might  be  divided  into  classes  of  product  as  A,  steam 
engines;  B,  steam  turbines,  C,  other  products.  The  auxiliary  departments 
are  Power  House,  Tool  Room,  Repairs  and  Maintenance,  Blacksmith  Shop, 
Yard,  etc. 


Sundries                      To  Cash 

14,700 

Labor  (Wages  and  Salaries  paid) 

14,000 

Stores,  Petty  cash  exp. 

400 

Aux.  Depts.,  Petty  cash  exp. 

200 

Warehouse,  Petty  cash  exp. 

100 

Sundries                      To  Stores 

22,800 

Work  in  Process 

17,000 

Betterments 

1,000 

Auxiliary  Depts. 

2,000 

Burden  (supplies  issued) 

2,400 

Warehouse  (supplies  issued) 

200 

Labor  (charged  to  workmen) 

200 

Sundries                      To  Work  in  Process 

41,000 

Stores  (partly  finished  work  put  in  stores) 

5,000 

Warehouse,  finished  product 

36,000 

Sundries                      To  Auxiliary  Depts. 

7,900 

WTork  in  Process  (work  done  in  the  auxiliary  depart- 

ments directly  chargeable  to  work  in  process) 

2,000 

Warehouse   (work  done  on  finishing     products  in 

the  warehouse) 

900 

Burden   (power  plant  and   other  general 

factory 

expense) 

3,000 

Auxiliary  Depts.  (Subdivided  in  the  actual  account- 

ing) work  done  by  one  department  for 

another 

2,000 

FACTORY  LEDGER 


Co. 

Labor 

Cash 

Stores 

Work  in 
process. 

Better- 
ments 

Aux. 
Depts 

Burden 

Ware- 
house 

Total 
Debits 

Company 

2,000 

2,000 

40,000 

44,000 

Labor 

14,000 

200 

14,200 

Cash 

15,000 

15,000 

Stores 

20,000 

300 

400 

5,000 

400 

26,100 

Work  in  process 

10.000 

1  7,000 

2,000 

8,000 

37,000 

Betterments 

600 

1.000 

400 

2,000 

Aux.  depts. 

2,000 

200 

2,000 

2,000 

1,700 

7,900 

Burden 

2,400 

5,000 

2,400 

3,000 

12,800 

Warehouse 

200 

100 

200 

36,000 

'00 

300 

37,100 

Total  credits 

37,400 

18,100 

14,700 

22,800 

41,000 

2,000 

7/00 

12,800 

40,000 

196,700 

Total  debits 

44,000 

14,200 

15,000 

26,100 

37,000 

2,000 

7.900 

12.  BOO 

37,  00 

196,700 

Bal.  for  month 

fCr. 

1  Dr. 

6,600 

3,900 

300 

3,300 

4,000 

2,;  oo 

10,200 
10,200 

(Cr. 
(Dr. 

60,000 

500 

60,500 

Bal.  at  1st  of  month 

4,000 

20,000 

18,000 

18,500 

60,500 

New  balances 

fCr. 

1  Dr. 

53,400 

4,400 

4,300 

23,300 

14.000 

16,200 

57,800 
57,800 

42 


BOOKKEEPING  AND  COST  ACCOUNTING 


Sundries                      To  Burden 

as  per  Burden  Distribution  sheet 

10,800 

Stores 

400 

Warehouse 

300 

Work  in  Process 

8,000 

Betterment 

400 

Auxiliary  Departments 

1,700 

Journal  Entries 

(Summarizing  the  month's  entries  in  the  books  of  original  entry,  such  as 
Cash  Book,  Petty  Caah,  Sales  Book,  Invoice  Book,  Bills  Receivable  and 
Payable  Book.     The  letters  A,  B,  C,  etc.,  refer  to  the  list  of  Transactions.) 


Putting  these  entries  into  the  Journal-ledger  form  they 
appear  as  shown  on  page  41. 

A  SIMPLE  ACCOUNTING  SYSTEM 
A  simple  double-entry  bookkeeping  system  for  a  man- 
ufacturing concern  is  illustrated  below.  The  General  Ledger 
or  Private  Ledger  has  only  from  twelve  to  fifteen  accounts, 
but  they  are  all  that  are  necessary.  A  purchase  or  invoice 
ledger  might  be  kept  in  which  each  creditor  would  have  a 
page,  and  a  sales  ledger  in  which  each  debtor  would  have  a 
page,  but  these  are  by  no  means  required,  for  all  the  infor- 
mation that  an  invoice  ledger  world  contain,  and  more,  is 
found  in  the  alphabetical  file  of  the  creditor's  bills,  and  all 
that  a  sales  ledger  would  contain  is  found  in  the  alphabetical 
file  of  the  carbon  copies  of  the  bills  and  statements  rendered 
to  the  debtors.  By  dividing  each  file  into  two  parts,  Paid 
and  Unpaid,  the  accountant  can  at  any  time  find  out  by 
adding  (preferably  on  an  adding  machine)  the  amounts  of 
unpaid  invoices  and  bills  how  much  is  owing  to  or  by  the 
concern  on  open  accounts.  The  auxiliary  BUI  Book  furnishes 
a  more  correct  record  of  Bills  Receivable  and  Bills  Payable 
than  the  ledger  does.  A  simple  statistical  sheet  with  entries 
made  on  it  from  the  ledger  at  the  end  of  each  month  shows  the 
general  course  of  the  business  during  the  year. 

In  this  system  Manufacturing  Account  is  charged  each 
month  with  all  the  costs  of  operation  that  appear  as  direct 
charges  in  the  Cash  Book,  Petty  Cash  Book  and  Invoice 
Book,  but  it  is  not  until  the  end  of  the  year  (or  other  fiscal 
period)  charged  with  depreciation  of  material  or  equipment, 
or  with  interest  on  investment,  or  credited  with  the  value  of 
the  manufactured  products.  Merchandise  is  credited  with 
all  sales,  whether  of  manufactured  or  partly  manufactured 
product,  or  of  raw  material  that  has  been  sold,  and  is  not 
charged  until  the  end  of  the  year  with  the  cost  of  goods 
sold. 

The  following  is  a  statement  of  the  summarized  trans- 
actions that  are  journalized  monthly  and  posted  in  the 
General  Ledger. 

Transactions 

(A)  Stockholders  Invested  $100,000  Cash. 

(B)  Paid  $50,000  for  Factory  Property. 
(O     Bought  Material  and  Supplies  $20,000. 

(D)  Paid  for  Labor,  Salaries,  Taxes,  Insurance,  and  Factory  Expense  $25,000. 

(£)  Paid  for  Purchases  (Cash)  $10,000. 

(F)  Issued  Notes  for  Purchases  $9,000,  and  Interest  $150. 

(G)  Paid  for  Advertising,  Traveling,  and  other  Selling  Expenses,  $5,000. 
(//)  Paid  for  Office  Furniture  $400,  and  Stationery,  $100. 

(J)  Sold  Factory  Products  on  Acct.,  $18,000. 

(./)  Sold  ditto  for  Cash,  $2,000. 

(K)  Received  Cash  in  part  payment  of  accts.,  $3,000. 

(L)  Received  Notes  with  interest  ($250)  added,  for  accts.,  $12,000. 

(M)  Discounted  some  of  these  notes,    $10,000,   bank  deducting  discount, 

$200. 

(AT)  One  of  our  banks  credits  us  interest  on  deposits,  $100. 


Cash 

115,100 

(.A) 

To  Capital  Stock 

1 00,000 

V) 

To  Mdse. 

2,000 

(.K) 

To  A/cs.  Rec'ble 

3,000 

(.M) 

To  Bills  Rec'ble 

10,000 

(AT 

To  Interest 

100 

Sundries 

To  Cash 

90,700 

(B) 

Real  Estate  and  Equipment 

50,000 

(D) 

Mfg.  a/c. 

25,000 

(E) 

Accts.  Payable 

10,000 

«?) 

Sales  Expense 

5,000 

(//) 

Office  Furniture 

400 

(ff) 

Mfg.  Acct. 

100 

(M) 

Interest 

200 

(O 

Mfg.  a/c. 

20,000 

To  Accts.  Pay. 

20,000 

(F) 

Accts.  Payable 

9,000 

Interest 

150 

To  Bills  Pay. 

9,150 

tf) 

Accts.  Rec'ble 

18,000 

To  Mdse. 

18,000 

(L) 

Bills  Rec'ble 

12,250 

To  Accts.  Rec'ble 

12,000 

To  Interest 

250 

In  the  ordinary  form  of  Ledger  these  entries  would  be 
posted  as  below: 

Ledger 

Capital  Stock 


By  Cash 

100,000 

Cash 

To  Sundries 

115,100 

By  Sundries 

90,700 

Real  Estate  and  Equipment 

To  Cash 

50,000    j 

Office  Furniture 

To  Cash 

400 

Bills  Receivable 

To  Sundries 

12,250 

By  Cash 

10,000 

Accounts  Receivable 

To  Mdse. 

18,000 

By  Cash 
By  Bills  Rec. 

3,000 
12.000 

Bills  Payable 

By  Sundries 

9,150 

Accounts  Payable 

To  Bills  Payable 
To  Cash 

9,000 
10,000 

By  Mfg.  Acct. 

20,000 

FACTORY  ACCOUNTING 


43 


Ledger — (Continued) 

-Mfg.    Acct. 


To  Cash 

To  A  09.  Pay. 

To  Cash 


25,000 

20.000 

100 


Mdse. 


By  Cash 

By  A/cs.  Rcc. 


2.000 
18,000 


Sales  Expense 


To  Cash 


5,000 


Interest 

To  Cash 

To  Bills  Pay. 

200 
150 

By  Cash 
By  Bills  Rec. 

100 
250 

350 

350 

Trial  Balance 


Capital  Stock 

100,000 

Cash 

24,400 

Real  Estate,  and  Equip. 

50,000 

Office  Furn. 

400 

Bills  Rec. 

2,250 

Accts.  Rec. 

3,000 

Bills  Pay. 

9,150 

Accts.  Pay. 

1,000 

Mfg.  Acet. 

45.100 

• 

Mdse. 

20,000 

Sales  Expense 

5,000 

Interest 

1  30, 1  50 

130.150 

The  system,  as  shown  in  this  elementary  form,  is  one  in 
which  the  entries  in  the  General  Ledger  during  the  year  are 
made  only  of  actual  transactions  between  the  concern  and 
outside  parties,  the  values  being  ascertained  from  bills, 
invoices  and  payrolls.  It  takes  no  account  of  transfers  of 
values  inside  of  the  concern,  of  changes  of  values,  or  of 
profits  or  losses  in  the  factory  operations,  until  the  end  of  the 
fiscal  period. 

The  accounts  being  kept  as  above  for  twelve  months  a 
trial  balance  taken  at  the  end  of  the  period  may  show  the 
.following: 

Trial  Balance 


Capital  Stock 

100,000 

Cash 

20,000 

Real  Estate  and  Equipment 

50.000 

Office  Furniture 

5C0 

Bills  Receivable 

5,000 

Accounts  Receivable 

25, COO 

Bills  Payable 

30,000 

Accounts  Payable 

15,000 

Manufacturing  Account 

250,000 

Merchandise 

215,000 

Sales  Expense 

10,000 

Interest 

500 

- 

360.500 

360,500 

Inventory 

The  inventory  taken  at  the  end  of  the  year  shows. 


Real  Estate  and  Equipment 

49.000 

Depreciation 

1000 

Office  Furniture 

400 

Depreciation 

100 

Mfg.  Acct    Mail,  and  Supplies 

30.000 

Work  in  Process 

20,000 

50.000 

Mdse.,     Finished    Product    in 

Warehouse 

20.000 

The  depreciations  $1000  and  S100  may  be  charged  either 
directly  to  Profit  and  Loss  or  indirectly  to  Mfg.  Acct.  as 
part  of  the  expense  of  factory  operations.  The  credit  bal- 
ance of  interest  account  is  due  to  financial  rather  than  to 
factory  operations  and,  therefore,  may  be  credited  to  Profit 
and  Loss. 

The  Sales  Expense,  $10,000,  is  chargeable  against  the  gross 
proceeds  of  sales  $215,000. 

The  following  Journal  entries  should,  therefore,  be  made: 


Mfg.  Acct.  To  Sundries 

To  Real  Estate  and  Equipment 
To  Office  Furniture 


1,000 
100 


Interest 

500 

To  Profit  and  Loss 

500 

Mdse. 

10,000 

To  Sales  Expense 

10,000 

When  these  entries  are  posted  and  the  inventories  entered 
in  red  ink  in  the  respective  accounts  Manufacturing  account 
will  appear  as  follows: 


Dr. 

Mfg. 

Acct. 

Cr. 

Bal.  (Trial  Bal.) 
To  Sundries 

250,000 
1,100 

Invty. 

Bal.  (tr.  to  Mdse.) 

60,000 
'.01,100 

251,100 

2'I.100 

To  Bal.  flnvty.) 

50,000 

The  balance  on  the  credit  side  represents  the  total  man- 
ufacturing cost,  including  all  the  losses  in  the  factory,  of  the 
Mdse.  that  was  sold  for  S215.000  and  of  the  $20,000  Mdse.  on 
hand.  It  should,  therefore,  be  charged  to  Mdse.  account  and 
the  difference  then  appearing  between  two  sides  of  the 
account  closed  into  Profit  and  Loss  by  the  following  Journal 
entry : 


Mdse. 

To  Profit  and  Loss 
Sales  of  Mdse. 
Inventory 


215,000 
20,000 


235,000 
Cr.  Bal.  of  Mfg.  Acct.    201.100 
Selling  Expense  10,000      211.100 


23.900 


44 


BOOKKEEPING  AND   COST  ACCOUNTING 


Merchandise  Acct.  will  then  be  balanced  as  below: 


Dr. 

Mdse. 

Cv. 

To  Sales  Exp. 

To  Mfg.  a/c. 

To  Profit  and  Loss 

10.000 

201,100 

23,900 

Bal.  (Trial  Bal.) 
Invty. 

215,000 

20,000 

235,000 

235.000 

To  Balance 

20,000 

A  Profit  and  Loss  Statement  may  now  be  made  as  below: 


Total  Sales 

Less  Selling  Expense 

201,100 
20,000 

215,000 
10,000 

205,000 
181,100 

Cost  of  Sales 
Credit  to  Mfg.  Acct. 
Less  Invty.  of  Mdse.  on  hand 

Profit  on  Sales 

Profit  on  Interest  Acct. 

23,900 
500 

Total  Profit 

24,400 

A  Balance  Sheet  taken  after  all  the  closing  entries  are 
posted  will  show  the  following: 


Dr. 

Balance 

Sheet 

Cr. 

Cash 

20,000 

Capital  Stock 

100,000 

R.  Est.  and  Equip. 

49,000 

Bills  Payable 

30,000 

Office  Fur. 

400 

Accts.  Payable 

15.000 

Bills  Rec. 

5.000 

Profit  and  Loss 

24.400 

Accts.  Rec. 

25,000 

Mfg.  Acct. 

50.000 

Mdse. 

20,000 

169,400 

169.400 

Adjustments  and  Criticisms — The  Auditor's  Report 

It  thus  appears  from  the  books  that  the  net  earnings  of  the 
concern  are  $24,400,  or  24.4  per  cent  of  the  capital  stock. 
We  will  suppose  that  an  auditor,  who  is  well  acquainted  with 
the  nature  of  the  business  and  is  competent  to  act  as  an 
appraiser  as  well  as  an  auditor,  is  asked  to  report  on  the 
accounts  and  also  to  advise  as  to  how  much  of  the  $24,400 
apparent  net  earnings  should  be  considered  available  for  divi- 
dends. 

He  reports  that  the  accounting  system  is  admirable  for  the 
purposes  for  which  it  was  intended,  that  is,  keeping  a  record 
of  all  transactions  between  the  Company  and  its  debtors  and 
creditors,  and  of  all  receipts  and  expenditures,  and  also 
showing  in  the  statistical  sheets  the  progress  of  the  business 
from  month  to  month.  He  says:  "I  have  verified  the  cash 
and  bills  receivable  on  hand;  I  find  that  the  balance  of  the 
Accounts  Receivable  correctly  represents  the  balance  due  by 
debtors  of  the  Company  for  goods  sold  to  them,  and  balances 
of  Bills  Payable  and  Accounts  Payable  correctly  show  all  the 
liabilities  of  the  concern  to  its  creditors  (contingent  liabilities 
due  to  endorsements  of  bills  receivable  not  included);   that 


all  goods  shipped  to  customers  are  accounted  for  by  the  ship- 
ping book  and  have  been  properly  charged  at  contract  prices 
in  the  Sales  Book,  and  that  the  invoices  for  all  purchases 
have  been  verified  as  to  receipt  of  goods  and  as  to  correctness 
of  prices.  The  books  have  been  kept  correctly,  and  the  trial 
balance  dated  Dec.  31st,  taken  from  the  books  before  the 
profit  and  loss  entries  were  made,  is  a  true  statement  of  the 
ledger  balances  of  that  date. 

The  closing  entries,  which  have  been  made  in  order  to 
determine  profits  and  losses,  depend  for  their  validity  upon 
certain  assumptions : 

1.  That  the  depreciation  in  value  of  Real  Estate  and 
Equipment  was  $1000  and  that  of  Office  Furniture  $100. 

2.  That  the  inventory  values,  Material  and  Supplies, 
$30,000;  Work  in  Process,  $20,000,  and  Mdse.  $20,000,  are 
correct. 

3.  That  nothing  remains  of  the  $10,000  charged  to  Sales 
Expense  which  is  of  any  appraisable  value  for  the  business 
of  the  coming  year. 

4.  That  of  the  total  charges  to  Mfg.  a/c  $250,000,  during 
the  year,  the  whole  amount  is  covered  by  the  cost  of  goods 
sold  and  the  cost  of  the  material  and  goods  inventoried,  and 
that  none  of  it  belongs  to  expenses  incurred  partly  for  the  past 
year's  business  and  partly  for  business  of  the  current  and 
future  years  (such  as  patterns  and  small  tools  charged  to 
expenses  of  manufacturing,  but  which  have  some  value  yet 
remaining). 

5.  That  the  credit  of  the  balance  of  Interest,  $500  to  Profit 
and  Loss  is  correct,  which  could  be  the  case  only  if  the  book 
values  of  Bills  Receivable  and  Bills  Payable  are  their  present 
values,  or  that  the  face  or  book  values  do  not  include  interest 
which  is  not  yet  accrued. 

6.  That  all  the  Bills  Receivable  and  Accounts  Receivable 
represent  good  accounts,  collectible  at  their  due  dates. 

Before  I  can  give  an  opinion  as  to  the  Profit  and  Loss 
entries  I  must  ask  for  an  explanation  of  these  six  items." 

The  head  bookkeeper  replies  to  the  auditor,  "I  can  answer 
as  to  the  fifth  and  sixth  items,  but  as  to  the  others  I  will  have 
to  refer  you  to  the  cost  accountant.  Referring  to  the  sixth 
item  there  is  one  account  receivable,  amounting  to  $1,000, 
which  is  doubtful,  as  the  concern  is  in  the  hands  of  a  receiver. 
We  may  ultimately  collect  this  account  in  full,  but  it  is  quite 
uncertain."  "In  that  case,"  says  the  auditor,  "it  had  better 
be  transferred  to  a  Suspense  Account."  As  for  the  fifth  item, 
the  Interest  Credit  balance,  the  present  value  of  the  Bills 
Receivable  is  about  $50  less  than  their  face  value,  which 
includes  interest  not  yet  due.  The  Bills  Payable  were  drawn 
at  60  days  without  interest,  in  accordance  with  the  terms  on 
which  the  materials  were  purchased.  Of  the  $30,000  Bills 
Payable  outstanding  Dec.  31st,  the  average  date  of  pay- 
ment is  about  one  month  later.  If  we  discounted  them  and 
paid  them  now  we  could  gain  $150  for  interest,  which  we 
might  credit  to  interest  or  to  Mfg.  Acct.  as  might  seem 
proper. 

"As  the  Bills  Payable  were  issued  in  payment  for  material 
charged  to  Mfg.  Acct.  the  entry  naturally  would  be 

Mfg.  Acct.  Dr.  To  Bills  Payable,  $30,000. 


FACTORY  ACCOUNTING 


45 


If  we  could  pay  the  notes  a  month  before  they  were  due 
receiving  a  rebate  of  interest  $150  the  entries  in  the  Cash 
Book  would  be 

Cash  Cr.  By  Bills  Payable,  $30,000 
Cash  Dr.  To  Interest,  150 

But  if  we  do  not  discount  either  our  notes  receivable  or  our 
notes  payable,  but  let  them  run  to  maturity,  what  is  the  use 
of  making  any  entries  for  interest  not  accrued,  just  because 
we  wish  to  be  exceedingly  precise  in  our  annual  Profit  and 
Loss  statement?  If  we  made  such  entries  we  would  have  to 
make  counter  entries  later  on  when  the  interest  had  accrued 
and  the  notes  were  paid.  It  is  better  to  let  both  Bills  Receiv- 
able and  Bills  Payable  appear  on  the  annual  statement  at 
their  face  values,  and  if  precision  is  desirable,  to  enter  in  a 
footnote  the  amounts  of  interest  not  accrued  at  the  date  of 
the  statement. 

As  to  the  $500  credit  balance  of  Interest  account  which 
we  have  closed  into  Profit  and  Loss,  that  represents  the  actual 
gain  due  to  having  interest  added  on  notes  receivable  and 
holding  these  notes  until  near  their  date  of  maturity,  when  we 
put  them  in  the  bank  for  collection  instead  of  having  them 
discounted." 

The  auditor  expressed  himself  as  satisfied  with  this  explana- 
tion, and  then  had  an  interview  with  the  cost  accountant, 
who  showed  that  he  had  a  most  elaborate  cost  system,  kept 
with  great  care,  that  a  perpetual  inventory  was  kept  of  all 
raw  material  and  partly  worked  material  in  the  stores,  as 
well  as  of  finished  products  in  the  warehouse,  and  that  the 
work  in  process  at  the  time  of  taking  the  inventory  was  all 
priced  at  its  actual  cost  of  labor  and  material  as  shown  by 
the  job  tickets,  plus  its  proper  proportion  of  burden  charge. 
"The  inventory  values,"  said  the  accountant,  "are  the  ac- 
tual cost  values  as  they  appear  on  the  cost  ledger  and  they 
are  correct,  as  they  are  proved  by  the  general  ledger,  the  cost 
accounts  being  tied  to  the  general  accounts  according  to  the 
practice  of  the  highest  authorities  in  accounting."  On  being 
questioned  further  the  accountant  produced  a  typewritten 
document  which  explained  his  method,  as  below: 

CODE  OF  THE  COST  ACCOUNTANT 

Company's  General  Ledger.  All  disbursements  made  or 
indebtedness  incurred  on  account  of  the  factory  is  charged 
in  the  General  Ledger  to  only  two  accounts,  Real  Estate  and 
Equipment,  and  Manufacturing  Account.  No  credits  to 
these  accounts  (except  in  the  case  of  the  sale  of  some  of  the 
real  estate  or  machinery)  are  made  until  the  end  of  the  year. 
A  statistical  statement  is  made  showing  the  total  charges  to 
Mfg.  Acct.  each  month,  and  the  accumulated  total  to  the 
end  of  the  year.  The  sources  from  which  these  charges 
originate  are  the  Cash  Book,  which  gives  the  amounts  paid 
on  the  Pay  Rolls,  and  Petty  Cash  disbursements  for  the 
factory,  and  the  invoices  for  materials  purchased. 

All  sales  of  goods  from  the  factory  warehouse,  whether 
produced  in  the  factory  or  purchased  outside  are  credited  to 
the  Mdse.  Acct.  at  the  net  price  at  which  they  are  charged 
to  customers  in  the  Sales  Ledger.    No  charges  to  this  account 


(except  for  goods  returned  or  for  allowances)  are  made  until 
the  end  of  the  year.  A  statistical  sheet  shows  the  monthly 
sales  and  the  total  sales  to  date. 

The  Factory  Ledger.  A  double-entry  factory  ledger  is 
kept,  in  which  "Private  Ledger"  account  is  credited  with  all 
the  amounts  that  are  charged  as  above  stated  to  Mfg.  Acct. 
in  the  General  Ledger,  the  following  accounts  being  debited: 

LD.  Direct  Labor.  Labor  employed  directly  in  man- 
ufacturing, and  charged  on  job  tickets  to  the 
product  made. 

LX.  Indirect  or  Expense  Labor.  Including  salaries, 
and  all  factory  labor  that  cannot  be  charged 
directly  to  specified  products. 

SM.  Stores.  Purchased  material  used  in  the  manu- 
factured product. 

SS.  Stores,  Supplies.  Fuel  and  other  supplies  pur- 
chased in  quantity  and  issued  by  the  stores  as 
needed.  SS.  and  SM.  are  recorded  in  a  per- 
petual inventory. 

SX.  Expense  Supplies.  Minor  supplies,  such  as  small 
tools,  charged  directly  to  expenses  of  the  factory 
departments — not  inventoried. 

GX.  General  Expense.  Taxes,  Insurance,  Water  Rent, 
and  other  expenses,  details  of  which  are  entered 
in  a  General  Expense  book,  which  has  columns 
for  the  different  classes  of  expense. 

{  Purchased  from  out- 


BB.  BM.  Betterments  to  Buildings 
and  Machinery. 

ER.  Repairs  to  Equipment. 


side  and  not  pur- 
duced  in  the  fac- 
tory. 


Credits  of  Labor  and  Material  Accounts — Direct  Labor, 
LD.,  and  Stores,  SM.,  applied  directly  to  the  manufacture  of 
goods,  are  charged  on  the  job  tickets  to  one  of  the  two  oper- 
ating accounts,  WM.,  worked  material,  which  includes  both 
work  in  process  and  work  which  has  undergone  one  or  more 
operations  and  is  kept  in  store  for  future  operations  or  finish- 
ing, and  FP.,  Finished  Product,  which  includes  both  the 
finished  goods  delivered  to  the  warehouse  for  shipment  and 
work  which  has  been  withdrawn  from  worked  material  stores 
and  is  undergoing  the  finishing  processes,  such  as  fitting, 
assembling,  painting,  packing,  etc.  They  are  also  charged 
on  job  tickets  to  the  betterment  accounts,  BB.,  buildings,  and 
BM.,  machinery. 

Perpetual  inventories  are  kept  of  worked  material  in  stores 
and  of  goods  in  warehouse. 

Indirect  Labor,  LX.,  and  Stores,  SS.  and  SX.,  are  credited, 
as  applied  or  issued,  on  Expense  books  or  Department 
Expense  sheets,  and  charged  to  the  following  accounts : 

PP.'  Power  Plant. 

EC.  Office  and  Clerical  Work. 

ES.    Superintendence. 

ER.  Repairs  and  Maintenance. 

GX.  General  Expense  or  its  subdivisions. 

At  the  end  of  each  month  all  the  entries  on  job  tickets  and 
expense  sheets  are  added  (on  adding  machines)  to  obtain  the 


46 


BOOKKEEPING   AND   COST  ACCOUNTING 


total  hours  of  labor,  wages  earned,  and  value  of  supplies 
issued,  and  the  totals  of  charges  to  the  several  charge  accounts. 
A  journal  entry  of  these  totals  is  then  prepared  in  the  follow- 
ing form: 


Journal  Entry 
Charge  Accts. 


Date. 
No.  . 


Amt. 

WM 

FP 

BB 

BM 

PP 

EC 

ES 

ER 

GX 

Cre  lit. 

LD    

LX 

SM 

SS 

SX 

Total 

When  this  entry  is  posted  the  labor  accounts  on  the  factory 
ledger  will  show  a  credit  balance,  since  the  total  credits  to 
LD.  and  LX.  cover  all  the  labor  that  has  been  performed 
during  the  month,  as  credited  to  the  workmen  on  the  pay- 
rolls or  salary  lists  and  as  charged  to  the  several  accounts  on 
the  job  tickets  and  expense  sheets,  while  the  debit  entries 
are  only  those  representing  the  amounts  that  have  been  paid. 

Burden  Account.  The  Total  charges  to  PP.,  EC,  ES., 
ER.  and  GX.,  represent  the  factory  overhead  or  burden, 
but  some  of  them  are  not  properly  chargeable  to  the  cost  of 
production  of  the  current  month,  but  should  be  distributed 
over  several  months.  For  example,  if  taxes  and  insurance, 
charged  to  GX.,  are  paid  annually,  only  one-twelfth  should  be 
charged  to  Burden  each  month.  Also  if  an  expensive  repair 
job  should  be  done  in  one  month  its  cost  may  be  distributed 
over  several  months.  A  journal  entry  is  to  be  made  each 
month  charging  Burden  and  crediting  PP.,  EC,  ES.,  ER. 
and  GX.,  for  so  much  of  these  accounts  as  pertains  to  the  cost 
of  that  month's  production,  the  debit  balance  remaining  in 
these  accounts  being  the  amounts  carried  over  to  be  credited 
in  other  months. 

Distribution  of  Burden.  The  total  monthly  debit  to 
Burden  acct.  is  charged  to  WM.,  FP.,  BB.  and  BM.  accounts 
in  the  following  manner:  Each  job  ticket  is  charged  with  the 
standard  burden  for  the  particular  job,  on  the  machine-hour 
rate  or  production-center-hourly  rate  basis.  The  sum  of  the 
charges  thus  made  is  added  up  and  the  total  compared  with 
the  total  debit  of  Burden  acct.  for  the  month,  and  the  dif- 
ference divided  by  the  sum  gives  a  percentage  or  supple- 
mentary rate  which  is  to  be  added  to  the  cost  of  each  job. 

A  statistical  sheet  is  kept  showing  the  total  cost  of  manu- 
facturing operations  each  month,  as  follows: 

Raw  Material  Purchased. 

Raw  Material  issued  by  Stores. 

Raw  Material  balance  at  end  of  month. 

Labor  on  Worked  Material. 

Burden  on  Worked  Material. 

Total,  Matl.  Labor  and  Burden. 

WM.,  L.  &  B.  issued  for  Finishing. 

Labor  on  Finishing. 

Burden  on  Finishing. 


Total  cost  of  Finished  Product. 

Cost  of  FP.  Sold. 

Balance  FP.  in  Warehouse. 

The  statistical  sheet  for  the  preceding  year's  business  was 
then  shown  as  given  below  (for  convenience  round  numbers 
are  used,  each  figure  representing  $1000.  The  accountant 
explained  that  the  factory  operations  started  with  a  rush  in 
January,  on  material  purchased  the '  preceding  month  but 
billed  in  January.  Some  overtime  was  made  in  that  month. 
By  February  the  work  reached  a  steady  gait,  which  con- 
tinued until  July  when  there  was  a  slight  falling  off  for  two 
months.  On  Sept.  1,  a  great  depression  of  business  began, 
which  caused  the  shutting  down  of  most  of  the  factory  for 
three  months  in  order  to  reduce  stocks.  Dec.  1st  the  fac- 
tor}' started  again  at  nearly  its  normal  rate. 

Statistical  Sheet — Manufacturing  Accounts 


d 

PQ 

o 

H 

03 

TJ 

IX 

C 

a, 

3 
J)   ^ 

~0    % 

a  5 
«  f 

5  £ 

s 

V 
3 

O 
C 

"a 

m 

% 

a 

a 

h 
O 

.2 

U 

c 
o 

a 

a 

P. 

s 

o 
z 

CD 

is 

a. 
u, 

c 
o 
Iri 

o 

a. 

c 

o 

c 

o 

CO 

On 

"3 

Oh 

a 

s 

s 

J 

a 

h 

is 

18 

05 

a] 

.-; 
5 

5 

O 

28 

o 
O 

20 

3 
M 

Jan. 

20 

6 

14 

8 

7 

21 

3 

8 

Feb. 

10 

5 

19 

6 

6 

17 

15 

5 

3 

4 

22 

20 

10 

Mar. 

6 

4 

21 

6 

6 

16 

14 

7 

2 

3 

19 

18 

II 

April 

6 

4 

23 

6 

6 

16 

15 

8 

2 

2 

19 

17 

13 

May 

6 

4 

25 

6 

6 

16 

15 

9 

2 

2 

19 

17 

15 

June 

6 

4 

27 

6 

6 

16 

15 

10 

2 

2 

19 

17 

17 

July 

5 

4 

28 

5 

6 

15 

14 

II 

2 

2 

18 

17 

18 

Aug. 

4 

4 

28 

5 

5 

14 

13 

12 

2 

2 

17 

16 

19 

Tot.  for 

8  rno. 

63 

35 

48 

48 

20 

22 

Sept. 

4 

3 

29 

1 

2 

6 

5 

13 

1 

2 

8 

14 

13 

Oct. 

1 

2 

28 

1 

2 

5 

3 

15 

1 

2 

6 

10 

9 

Nov. 

4 

2 

30 

1 

2 

5 

6 

14 

1 

2 

9 

6 

12 

Dec. 

6 

6 

30 

5 

6 

17 

II 

20 

2 

3 

16 

8 

20 

Total 
12  m. 

78 

48 

30 

56 

60 

164 

144 

20 

25 

31 

200 

180 

20 

Total 

4  m. 

15 

13 

8 

12 

5 

9 

The  Auditor's  Comments 
After  examining  the  Code  and  the  statistics  the  auditor 
said  "This  is  all  right  with  one  exception,  the  addition  of  the 
supplementary  burden  rate  to  the  valuation  of  the  worked 
material  in  store  and  of  the  finished  product  in  the  ware- 
house. During  the  first  eight  months  the  direct  labor  cost 
of  worked  material  was  48  (units  of  $1000  each)  and  of  fin- 
ishing 20,  total,  68  units,  while  the  burden  for  the  same 
period  was  48  plus  22  equals  70,  the  burden  being  practically 
100  per  cent  of  the  labor  cost.  In  the  next  three  months  the 
total  direct  labor  cost  was  6  and  the  burden  12,  or  200  per 
cent  of  the  direct  labor  cost.  By  charging  into  the  inventory 
value  of  such  of  the  goods  as  remain  of  those  produced  during 
these  three  months  you  have  overvalued  them  and  so  increased 
the  apparent  profits  of  the  year's  business.  Suppose  that 
during  these  three  months  the  manufacturing  departments 


FACTORY  ACCOUNTING 


47 


had  been  entirely  shut  down  and  no  goods  were  produced. 
The  greater  part  of  the  burden  would  still  be  running  on, 
costing  say  S  or  10  units.  You  could  not  charge  that  to  cost 
of  goods  if  none  were  produced;  you  would  have  to  charge  it 
to  Profit  and  Loss,  or  else  let  it  remain  in  Burden  Account  to 
be  charged  wrongly  to  the  cost  of  goods  made  in  succeeding 
months.  This  supplementary  burden,  due  to  the  partial 
idleness  of  the  factory,  should  not  be  charged  to  the  cost  or 
inventory  value  of  the  goods  produced,  but  to  Profit  and  Loss. 
It  is  not  a  cost  of  production  but  a  cost  of  idleness  and  non- 
production. 

"It  appears  from  the  statistics,"  continued  the  auditor, 
"that  if  the  product  of  the  last  four  months,  costing  S  plus 
5  equals  13  units  for  direct  labor,  had  been  charged  with  the 
normal  rate  of  burden,  the  burden  would  have  been  only  13 
units  instead  of  12  plus  9  equals  21  units.  There  is,  there- 
fore, an  overcharge  of  cost  of  $4000  for  worked  material  and 
$4000  for  finished  product,  a  total  of  S8000.  Much  of  this 
overvaluation  appears  in  the  inventory  of  goods  on  hand, 
a  large  proportion  of  which  consists  of  the  over-costed  goods 
made  during  the  three  dull  months.  An  examination  of  the 
perpetual  inventory  cards  shows  that  the  over-valuation  in 
the  inventory  amounts  to  about  $2000  in  worked  material 
and  S2000  in  finished  product.  The  following  entry  should, 
therefore,  be  made: 


Profit       Loss                      To  Sundries 

4000 

For  over-valuations  in  inventory 

To  Mfg.  a/c. 

2000 

To  Mdse. 

2000 

In  regard  to  the  second  query  of  the  auditor,  relating  to 
the  S1000  charged  as  depreciation  of  Real  Estate  and  Equip- 
ment Account,  and  to  the  fourth  query,  relating  to  remaining 
asset  values  of  some  of  the  charges  to  Mfg.  Acct.  the  account- 
ant explained  that  the  Inventory  Book  showed  that  a  depre- 
ciation of  2  per  cent  or  $500  had  been  assessed  on  Real  Estate, 
§25,000,  and  4  per  cent  or  $1000  on  Machinery,  $25,000,  but 
that  $500  had  been  added  to  machinery  and  credited  to  Mfg. 
Acct.  for  betterments  to  machinery  and  equipment,  in  the 
addition  to  it  of  certain  patterns  and  small  tools,  which  had  a 
present  value  estimated  at  $500.  This  reduced  the  total 
depreciation  of  Real  Estate  and  Equipment  to  $1000. 

The  auditor  agreed  to  this,  but  said  that  while  4  per  cent 
was,  no  doubt,  a  sufficient  allowance  for  the  actual  deprecia- 
tion of  the  machinery  below  its  cost  value,  an  additional  sum 
should  be  deducted  as  a  Reserve  Depreciation  against  obsoles- 
cence which  might  take  place  in  the  next  ten  or  twenty  years. 
He  recommended  that  an  additional  4  per  cent  be  allowed  for 
this.  The  Real  Estate  and  Equipment  account  would  then 
stand  as  follows: 


Original  Cost,  Land  and  Buildings 

Machinery 
Additions  to  Machinery 

500 

1000 
1000 

25,000 

25.000 

500 

Depreciation  on  land  and  buildings,  2% 
Depreciation  on  Machinery,  4% 
Reserve  for  obsolescence,  4% 

50,500 
2.500 

Difference 

48.000 

There  are  different  ways  of  treating  depreciation  in  the 
books,  the  auditor  said,  but  he  preferred  to  keep  Real  Estate 
and  Equipment  Account  at  its  full  value  to  the  business  as  a 
"going  concern,"  in  this  case  at  $50,500  and  since  the  depre- 
ciation was  not  actual,  but  only  theoretical,  the  machinery 
being  as  good  as,  if  not  better,  than  new,  it  had  better  be 
kept  in  a  separate  account,  called  Reserve  for  Depreciation, 
and  it  will  appear  there  as  a  credit,  offsetting  the  debit  balance 
of  Real  Estate  and  Equipment,  and  reducing  the  credit  of 
Profit  and  Loss  account,  or  Surplus  Account,  into  which  the 
credit  balance  of  Profit  and  Loss  will  ultimately  be  closed. 

For  the  additions  to  machinery,  estimated  on  the  inventory 
at  $500  present  value  no  entry  has  hitherto  been  made,  and 
the  amount  has  been  hidden  in  the  general  ledger  in  the  charge 
to  Mfg.  Acct.  and  in  the  factory  cost  accounts  in  numerous 
charges  to  Repairs  or  General  Expense  which  cannot  be  sep- 
arated. Since  Mfg.  has  been  closed,  except  as  to  the  inven- 
tory balance  of  $50,000  the  only  proper  way  to  get  the  $500 
additional  value  into  Real  Estate  and  Equipment  Acct.  is  to 
credit  it  to  Profit  and  Loss. 

The  following  journal  entries  should,  therefore,  be  made: 


Real  Estate  and  Equipment 

1500 

To  Profit  and  Loss 

Cancelling  former  entry  of  de- 

preciation 

1000 

Betterments     to     machinery, 

see  inventory 

500 

2500 

150O 

Profit  and  Loss 

To  Reserve  for  Depreciation: 

Est.  Dep'n  on  Buildings  2   J    or 

25,000 

500 

Est.  Dep'n  on  Machinery,  4%  or 

25,000 

1000 

Est.  Dep'n  for  Obsolescence,  4% 

1000 

250O 

As  to  the  third  query,  relating  to  Sales  Expense,  the  book- 
keeper showed  that  of  the  $10,000  charged  to  the  account 
$3000  had  been  incurred  for  publication  of  a  catalogue,  and 
that  $2000  of  it  might  properly  be  considered  as  the  present 
value  of  it,  as  a  new  catalogue  would  not  be  needed  for  sev- 
eral years.  Also  S2000  had  been  spent  in  traveling  and  other 
expenses  in  establishing  agencies  and  in  doing  advance 
advertising,  which  expense  was  for  the  benefit  of  the  busi- 
ness of  future  years.  The  auditor  agreed  that  the  entry 
which  had  charged  the  whole  of  Sales  Expense  to  Profit  and 
Loss  should  be  amended  by  a  counter  entry,  as  below: 


Sales  Expense 

3000 

To  Profit  and   Loss 

for  present    value    of   expenses  in- 

curred by  Sales  Dept.,  viz.: 

Catalogue 

2000 

Establishing  Agencies 

1000 

3000 

This  would  leave  Sales  Expense  with  a  debit  balance  of  $3000, 
representing  an  asset  which  would  be  gradually  written  off 
in  the  next  two  or  three  years. 

When  all  these  correcting  entries  are  posted  the  trial  bal- 
ance will  be  changed  in  the  following  items: 


48 


BOOKKEEPING  AND   COST  ACCOUNTING 


Dr. 

Cr. 

Real  Estate  and  Equipment 

1,500 

Profit  and  Loss 

2,500 

1,500 

Profit  and  Loss 

4,000 

3,000 

Reserve  for  Depreciation 

2.500 

Manufacturing  Acct, 

2,000 

Merchandise 

2,000 

Sales  Expense 

3,000 

Suspense  Acct. 

1,000 

Accts.  Receivable 

1,000 

12.000 

12,000 

An  Income  or  Profit  and  Loss  Statement  may  now  be 
prepared  for  the  information  of  the  stockholders  as  fol- 
lows: 


The  balance  of  Profit  and  Loss  is  now  reduced  to  $22,400 
and  against  this  is  a  charge  of  $1000  to  Suspense  Account 
which  may  ultimately  prove  to  be  a  bad  debt. 

There  is  a  contingent  liability  in  regard  to  $10,000  worth 
of  discounted  notes  receivable  which  have  the  company's 
endorsement.  No  account  of  these  appears  in  the  books, 
except  in  the  form  of  memorandums  in  the  Bills  Receivable 
book,  but  they  should  be  taken  into  consideration  before 
declaring  a  dividend.  The  liability  on  them  can  be  insured 
against,  and  a  reserve  of  $2000  against  it  will  probably  be 
ample.  Deducting  these  two  amounts  $1000  and  $2000  from 
S1S,400  leaves  $15,400  as  applicable  to  Dividends  and  Surplus. 

As  to  the  amount  that  should  be  divided  among  the 
stockholders  it  should  always  be  borne  in  mind  that  a  suc- 
cessful business  is  a  growing  business  and  one  with  increasing 
capital  and  surplus.  A  business  that  does  not  grow  is  suf- 
fering from  "dry  rot"  and  unless  something  happens  to 
rejuvenate  it  it  will  ultimately  fail.  It  is  difficult  to  get  new 
capital  for  a  business  that  is  not  growing.  Therefore  it  is 
most  important  that  net  earnings  in  normal  business  years 
should  not  all  be  divided,  but  that  a  considerable  portion 
should  be  retained  in  order  to  increase  the  surplus  and  pro- 
vide for  future  growth,  and  also  in  order  to  provide  a  fund  to 
maintain  regular  dividends  in  times  of  depression. 

In  this  case  an  8  per  cent  dividend  would  appear  to  be  about 
right.  If  checks  are  drawn  for  this  dividend  the  following 
entries  may  be  made  and  posted. 


Profit  and  Loss                      To  Sundries 

22,400 

To  close  P.  &  L.  acct.  for  the  year: 

To  Dividend,  8% 

8,000 

To  Surplus 

14,400 

Dividend 

8.000 

To  Cash 

8.000 

The  trial  balance  now  becomes  a  statement  of  Assets  and 
Liabilities  as  below: 


Ass.-ts 

Liabilities 

Cash 

12,000 

Capital  Stock 

100,000 

Real  Est.  &  Equip. 

50,000 

Surplus 

14,000 

Office  Furniture 

400 

Bills  Payable 

30.000 

Bills  Receivable 

5,000 

Accts.  Payable 

15,000 

Accts.  Receivable 

24,000 

Reserve  for  Dep'n. 

2,500 

Mfg.  Acct. 

48,000 

Mdse. 

18,000 

Sales  Expense 

3,000 

Suspense 

1,000 
161,900 

161.900 

Income  from  Sales 

215,000 

Less  Charges  to  Sales  Exp. 

10,000 

Deduct    Catalogue  and    other   ex- 

penses chargeable  to  next  year's 

3,000 

7.000 

business 

208,000 

Net  Income  from  Sales 

Cost  of  Sales: 

Charges  to  Mfg.  a/c. 

250.000 

Add  Depreciations 

2,600 
252,000 

Credits: 

Machinery  betterment 

500 

Inventory: 

Raw  Mat'l. 

30.000 

Worked  Mat'l. 

18,000 

Finished 

18.000 

66,500 

196.100 

Profit  on  Sales 

21,900 

Profit  on  Interest 

500 

Total  Profits 

22,400 

Dividend  8% 

8,000 

Surplus 

14,400 

Against  this  Surplus  there  is  a  Suspense  Acct.  of  $1000  for 
a  possible  bad  debt,  and  a  contingent  liability  on  $10,000 
worth  of  endorsed  paper. 

Error  Due   to   Keeping   Overhead   Percentage 
Uniform 

Some  years  ago,  the  president  of  a  bridge  company  told  me 
one  day  that  he  could  not  understand  why  his  actual  earnings 
fell  so  far  short  of  his  estimates.  He  stated  that  he  knew  the 
material  charge  was  correct,  that  he  had  considerably  reduced 
his  direct  labor  by  introducing  piece  work,  etc.,  and  that  he 
was  figuring  his  overhead  at  the  same  per  cent  he  always  had, 
and  yet  his  actual  earnings  came  over  $100,000  short  of  his  esti- 
mates. I  rather  surprised  him  by  telling  him  that  he  himself 
had  told  me  the  cause  of  the  difference,  namely  the  reduction  of 
his  direct  labor,  and  distributing  his  overhead  at  the  same  per- 
centage of  the  reduced  amount  as  he  had  used  before  the  reduc- 
tion. For  instance,  assuming  a  labor  cost  of  $100  and  overhead 
of  $100,  the  overhead  would  of  course  be  100  per  cent.  Now  if 
you  reduce  the  labor  cost  to  $S0  and  the  overhead  remains  $100, 
and  yet  you  only  distribute  100  per  cent  or  $80,  you  have  $20 
remaining  undistributed.  I  told  him  to  divide  his  overhead  for 
a  given  time  by  the  tonnage  produced  in  that  time  which  would 
give  the  unit  cost  of  overhead  per  ton  to  be  multiplied  by  the 
number  of  tons  in  the  particular  order  under  consideration.  The 
next  time  I  met  him  he  told  me  I  had  solved  his  problem.  It 
is  an  actual  example  showing  how  we  may  be  led  astray  by  follow- 
ing the  same  old  way  of  doing  things  without  giving  proper  con- 
sideration to  the  subject. — -Gershom  Smith,  Eng.  Mag.,  June, 
1909. 


CHAPTER  VI 


COST  ACCOUNTING 


Factory  Costs.  A  finished  product  in  a  factory  making 
metal  goods  sometimes  consists  of  a  single  piece,  such  as  a 
casting,  on  which  very  little  work  is  done,  but  usually  it  con- 
sists of  many  pieces,  each  one  of  which  may  have  from  one 
to  six  or  more  operations  done  on  it,  which  are  "assembled" 
or  fastened  together,  first  into  groups  of  two  or  more  pieces 
with  their  fasteners,  and  then  the  groups  are  assembled  into 
the  finished  product,  so  called,  which  later  may  be  plated, 
lacquered  or  otherwise  "finished." 

A  "piece"  is  a  single  bit  of  metal — it  may  be  a  casting  of 
iron  or  brass,  or  be  punched  or  stamped  from  sheet  metal, 
or  cut  from  a  rod.  Anything  done  to  it,  by  a  machine  or  by 
hand,  which  causes  it  to  progress  from  raw  material  toward 
finished  product  is  called  an  "operation." 

An  "  operation  "  is  usually  a  work  of  one  kind,  such  as 
drilling  a  hole  or  series  of  holes,  or  cutting  a  groove  or  two  or 
more  grooves,  on  one  piece  or  on  any  number  of  pieces  of  the 
same  kind  and  shape,  and  it  is  usually  done  by  one  man  on 
one  machine,  but  sometimes  it  is  done  by  a  man  with  a 
helper  or  two,  on  two  or  more  machines,  such  as  a  blacksmith 
with  a  heater  and  a  helper,  heating,  rough  forging,  die  forging 
and  trimming,  the  whole  being  classed  on  a  single  "  work 
order  "  as  one  operation,  whether  it  is  done  on  one  piece  or 
on  ten  thousand  pieces  of  the  same  kind. 

Each  kind,  variety  and  size  of  finished  product  has  a  selling 
price,  per  single  article,  per  dozen,  hundred,  gross  or  thou- 
sand, which  may  vary  with  market  conditions. 

The  selling  price  is  supposed  to  cover  factory  cost,  selling 
expense  and  profit,  but  as  the  selling  price  may  be  governed 
by  competition  and  as  the  factory  cost  or  the  selling  expense, 
or  both,  may  be  abnormally  high,  relatively  to  the  selling 
price,  the  profit  may  be  turned  into  a  loss. 

In  this  treatise,  only  factory  costs  are  considered,  the  selling 
expense  and  the  selling  price  being  matters  that  concern  the 
Sales  Department  and  the  General  Management. 

The  Factory  Cost  of  the  whole  annual  product  covers  the 
raw  material,  less  the  value  of  scrap  returned  from  any  of 
the  operations,  the  Direct  Labor,  the  Indirect  Labor,  includ- 
ing salaries,  fuel  and  other  supplies,  repairs,  depreciation  and 
every  other  kind  of  expense  "  burden  "  or  "  overhead  " 
that  is  related  to  the  turning  out  of  product.  It  does  not 
properly  include  the  cost  of  breakdowns  that  cause  shutting 
down  of  the  factory  for  any  long  period  of  time,  nor  losses 
of  work  or  of  profit  caused  by  such  breakdowns,  nor  losses 
due  to  idleness  caused  by  fires,  by  business  depressions,  by 
strikes,  by  inefficiency  of  the  sales  department,  or  by  a  por- 
tion of  the  product  becoming  obsolete  or  out  of  fashion. 


These  are  business  losses  and  not  factory  losses;  and  they 
may  be  covered  by  an  insurance  fund,  the  annual  contribu- 
tion to  which  should  be  considered  by  the  Sales  Department 
in  fixing  selling  prices,  or  deducted  from  the  surplus  out  of 
which  dividends  are  declared. 

The  Factory  Cost  of  the  whole  annual  product,  thus 
defined,  may  be  obtained  by  the  Accounting  Department  by 
the  ordinary  methods  of  bookkeeping,  and  when  the  product 
of  the  factory  is  a  single  kind  of  article,  such  as  pig  iron,  or 
flour,  or  cloth,  or  automobiles  of  one  size  and  style,  the  cost 
price  per  ton,  or  per  barrel,  or  per  yard,  or  per  piece,  may 
easily  be  determined  month  by  month,  but  when  the  product 
is  of  many  kinds  and  sizes  and  the  operations  on  different 
parts,  from  raw  material  to  finished  product  take  place  in 
different  months  the  determination  of  the  "  unit  cost  "  of 
each  kind  is  a  matter  of  great  difficulty.  When  the  number 
of  varieties  runs  into  thousands,  and  the  number  of  opera- 
tions into  tens  of  thousands  all  ordinary  accounting  systems 
utterly  fail  even  to  approximate  real  factory  costs  of  individ- 
ual articles. 

The  best  solution  of  the  complex  problem  of  obtaining 
unit  factory  costs  is  to  divorce  the  Accounting  Department 
from  the  Cost  Department,  and  have  the  latter  determine 
costs  by  an  independent  method. 

A  new  definition  of  Factory  Cost  is  now  needed.  It  is  not 
post-mortem  cost,  what  the  goods  cost  last  year,  but  what  it 
now  costs  to  reproduce  them  or  what  they  will  probably  cost 
during  the  remainder  of  the  current  year,  assuming  that  the 
factory  runs  at  a  normal  average  rate. 

What  the  management  needs  to  know  is  the  costs  that  can 
be  used  as  a  basis  for  fixing  the  minimum  selling  price,  as  a 
basis  for  inventory  values  from  which  profits  and  losses 
are  computed;  as  a  basis  for  comparison  of  costs  of  similar 
articles  of  different  sizes  or  grades,  or  of  the  same  article  at 
different  times;  as  an  index  of  the  efficiency  of  the  factory 
management;  and  as  a  guide  in  determining  whether  to 
abandon  the  manufacture  of  some  parts  of  the  product  and 
to  push  the  sale  of  other  parts. 

Accounting  versus  Cost  Keeping.  Accounting  has  to  do  with 
payments  of  bills;  classification  of  expenditures;  changing 
records  of  assets  and  liabilities;  inventories;  gross  and  net  profit; 
credits,  finances,  bank  relations,  notes. 

The  cost  system  takes  hold  where  accounting  leaves  off.  It 
has  in  common  with  accounting  only  two  things — the  use  of  the 
same  set  of  figures  of  expenditures,  and  the  value  of  the  account- 
ing as  a  means  of  proof.  It  deals  with  internal  affairs  only — 
accounting  with  external. 

The  cost  system  demands  a  somewhat  different  experience 


49 


50 


BOOKKEEPING  AND  COST  ACCOUNTING 


and  different  training  than  does  accounting.     Accountants  have 
mistaken  form  for  substance. 

No  business  is  made  a  success  by  systems  alone.  Success  is 
due  to  policies,  energy,  enthusiasm,  work  and  sagacity. 

The  best  way  to  build  a  cost  system  is  from  the  totals  down 
to  the  details,  and  not  from  the  details  up  to  the  totals.  Start 
with  the  totals  of  the  three  general  elements,  material,  labor  and 
expense,  as  proven  with  the  accounting.  Divide  into  sub-totals 
and  then  into  still  other  subdivisions.* 

It  takes  in  a  plant  of  any  size  from  one  to  two  years  to  build  a 
good  cost  system,  because  so  much  human  nature  is  involved.! 
B.  A.  Franklin,  Eng.  Mag.,  vol.  43,  p.  705. 

STARTING  A   COST  ACCOUNTING   SYSTEM 

The  Stores  System.  In  organizing  a  complete  cost 
system  in  a  factory  making  a  variety  of  products  the  first 
thing  to  be  done  is  to  establish  a  stores  system,  and  to  keep 
an  accurate  record  of  all  materials  and  supplies  purchased 
and  of  all  given  out  to  the  shops.  There  should  be  a  place 
for  everything  and  everything  in  its  place,  whether  the  place 
be  a  bin,  shelf  or  hook  in  the  storehouse  itself,  or  a  pile  in  the 
yard,  or  on  the  floor  of  the  factory.  The  storekeeper  is  to 
be  held  responsible  for  all  material  and  for  keeping  record  of 
it,  until  he  is  relieved  of  responsibility  by  turning  it  over  to 
the  foremen  of  departments  either  on  general  or  standing 
orders,  or  on  written  orders,  or  requisitions,  or  stores  issue 
tickets  for  special  jobs.  A  continuous  or  perpetual  inven- 
tory, or  "  balance  of  stores  "  record,  should  be  kept,  prefer- 
ably on  cards,  and  it  is  advisable  to  supplement  these  with 
bin  cards  on  the  bins  in  which  the  materials  are  kept.  The 
minuteness  of  detail  of  these  records  is  a  question  for  the 
management  to  settle.  Care  must  be  taken  not  to  let  the 
stores  system  be  overburdened  with  red  tape,  which  costs 
more  than  it  is  worth.  All  direct  material,  that  is  raw  or 
partly  worked  material  that  enters  into  the  finished  product, 
must  be  charged  on  individual  stores  issue  tickets  or  job 
tickets,  but  minor  supplies  for  the  departments  may  be 
lumped  together  in  many  eases  and  charged  monthly  to 
department  burdens. 

Labor  Charges.  The  next  important  thing  in  cost 
accounting  is  to  make  provision  for  charging  all  direct  labor 
to  the  job  on  which  it  is  employed.  The  best  means  for 
doing  this  is  the  job  ticket. 

Direct  material  and  direct  labor  thus  being  charged  to 

*  This  needs  some  explanation.  If  "to  build  a  system"  means 
to  prepare  a  scheme  for  the  system,  we  may  build  down  from  the 
totals  to  the  details  as  stated,  thus: 

Total  Expenditure: 

Material;    Labor;    Expense; 

Distribute  to  Departments  or  to  Classes  of  Products; 

Subdivide  into  Costs  of  Individual  Products. 

But  in  using  a  cost  system  we  build  up  from  details  to  totals,  thus: 

Stores  issue  Tickets;  Time  Cards;  Bills  for  expenses. 
Allocation  of  Expense  Burden  to  the  Machine-hour  Costs. 
Cost  summaries  of  Parts  or  Pieces. 
Cost  of  Groups  and  of  Products. 
Totals  by  Classes. 
Grand  Total. 

t "  Engineering  is  the  science  and  art  of  overcoming  the  resistances 
of  nature — including  human  nature.". — W.  K. 


individual  jobs,  we  obtain  the  prime  cost,  which,  in  many 
businesses,  is  considered  sufficient  for  all  practical  require- 
ments, but  in  all  factories  in  which  the  burden  is  an  important 
fraction  of  the  total  cost,  and  especially  in  factories  having 
more  than  one  department,  the  proper  distribution  of  the 
burden  is  fully  as  important  as  the  accurate  recording  of 
prime  costs. 

FACTORY   ORDERS 

Factory  orders  may  be  divided  into  several  classes: 

1.  Standing  Orders.  These  need  not  be  in  writing,  but 
are  taken  for  granted,  such  as  "  Keep  factory  clean  ";  "  Tool 
room,  grind  all  tools  sent  in  from  the  shops,  as  directed  by 
the  foreman  ";  "  Blacksmith  shop,  forge  all  tools  as  required 
by  tool  room;  do  all  repair  work  required  by  department 
foremen." 

A  list  of  such  orders  with  their  appropriate  symbols  should 
be  kept  in  the  counting  room  and  on  the  desks  of  the  foremen 
or  department  clerks,  so  that  when  labor  or  expense  tickets 
are  made  out  for  work  done  on  these  orders  the  proper  charge 
symbol  may  be  written  on  them. 

2.  Office  Orders,  issued  either  by  the  general  office  or  by 
the  factory  office  for  certain  work  to  be  done,  the  details 
of  which  will  be  arranged  by  the  planning  department. 
"  Example:  Make  12  engines,  Class  E9  for  stock.  Deliver 
in  warehouse  within  three  months." 

3.  Production  Orders,  made  by  the  planning  department, 
for  work  to  be  done  in  the  several  departments.  Usually 
these  are  subdivisions  of  the  office  orders.  Example:  Foun- 
dry, make  12  cylinders,  12  pistons,  12  flywheels,  12  bed- 
plates, 24  bearing  caps,  from  E9  patterns.  Forge  shop,  make 
full  set  of  forgings  for  12E  engines  as  per  drawings.  Main 
shop,  do  machine  work  on  12  engines  E9,  as  per  drawings. 

4.  Job  Orders,  written  on  job  tickets,  subdivisions  of 
Production  Orders,  specifying  work  to  be  done  by  one  man 
or  by  a  group  of  men  using  one  machine  or  a  group  of  ma- 
chines, or  a  bench  or  floor,  on  a  single  operation  or  on  several 
operations  in  sequence,  on  one  piece  or  on  any  number  of 
pieces  of  the  same  kind.  A  job  order  is  also  written  for  the 
assembling  of  pieces  into  groups  or  into  completed  structures. 

The  job  ticket  when  issued  should  contain  all  the  informa- 
tion concerning  the  job  that  may  be  needed  by  the  foreman 
of  the  shop,  and  when  completed  it  should  have  such  addi- 
tional information  as  is  required  for  the  records  of  the  Cost, 
Statistics  and  Accounting  Departments. 

Small  Orders.  A  large  factory  may  receive  as  many  as  a 
hundred  or  more  such  trifling  orders  in  aday,  the  total  costing 
perhaps  not  over  $25.  Under  old  systems  of  management 
these  gave  a  great  deal  of  trouble  to  the  foremen  of  the  sev- 
eral departments  on  account  of  their  interfering  with  regular 
work,  and  to  the  order  clerk  held  responsible  for  "  chasing 
them  through  the  factory  "  and  getting  them  shipped  within 
a  reasonable  time.  No  attempt  was  made  to  record  their 
costs  and  there  was  no  check  upon  delays  and  wasted 
motions  and  consequent  excessive  costs  of  production. 
Under  modern  systems  of  management,  with  a  planning 
room  to  issue  orders  to  the  several  departments,  small  orders 


COST  ACCOUNTING 


51 


are  executed  promptly  without  interfering  greatly  with  the 
regular  work  and  records  are  made  of  every  operation. 

In  order  to  keep  the  clerical  work  down  to  a  minimum  a 
system  should  be  devised  after  joint  study  by  the  head  of 
the  planning  room,  the  chief  cost  clerk,  the  chief  accountant 
and  the  superintendents  of  the  several  shops,  by  which  the 
progress  of  such  work  through  the  shops  will  be  made  auto- 
matically without  any  "  chasing,"  by  which  the  least  possible 
number  of  blank  forms  will  have  to  be  filled  and  handled, 
and  the  least  amount  of  writing  and  bookkeeping  done  con- 
sistent with  obtaining  a  complete  record  of  every  operation 
and  its  approximate  cost. 

SUBDIVISIONS   OF  PAY  ROLL 

Direct  Labor. — Departments  A,  B,  C,  etc. 

Charged  on  job  tickets  to  particular  jobs  on  Pieces,  Groups, 
Finished  Goods,  by  Departments.  The  total  direct  labor 
on  these  tickets  equals  the  total  departments'  direct  labor 
pay  rolls. 

Indirect  Labor — Departments  A,  B,  C,  etc.,  and  Expense 
Departments. 

TIME-KEEPING 

The  time  may  be  kept  on  time  books,  time  tickets  (daily, 
weekly,  or  by  jobs),  or  on  the  regular  job  tickets,  which  con- 
tain all  the  original  entries  both  for  time  and  for  jobs. 

The  time  may  be  kept  by  any  convenient  method  which  is 
most  suitable  for  the  department.  Thus,  in  the  Power 
Plant  where  a  man's  job  is  the  same  from  month  to  month, 
the  time  of  each  fireman  would  be  entered  each  day  in  a 
time  book,  and  the  cost  of  firing  labor  would  be  entered  only 
once  a  month,  as  the  total  of  all  the  firemen's  wages  for  the 
month. 

In  the  blacksmith  shop  some  of  the  work  would  be  direct 
labor,  charged  on  job  tickets  to  particular  jobs,  some  work  on 
standing  orders,  such  as  "  Forge  all  tools  as  required  by  the 
Tool  Room."  "  Repair  all  tools  for  the  Power  Plant." 
The  daily  time  ticket  may  be  found  most  suitable  for  this 
shop,  with  several  lines  on  it  showing  by  symbols  the  different 
jobs  worked  on  in  a  day  and  the  time  required  for  each. 
Example : 


Time  Ticket, 
No.  of  Wkm Name 

Blacksmi 

th  Shop 

.    Date 

Symbol 

Description  of  Work 

Hrs. 

Rate 

Amt. 

Symbol  of 

Machine 

Used 

J    1017 
PPR 

TR 

Job  order 

Repairs  of  tools  for 

Power  Plant 
Forging  Tools  for  TR 

Total 

35 

4  5- 
2 

10 

35 

3.50 

The  tickets  for  each  day  would  first  go  to  the  pay-roll  clerk, 
who  would  enter  the  time  on  the  pay  roll,  then  to  the  job 
clerk,  who  would  sort  the  tickets  by  symbols,  and  at  the  end 
of  the  pay-roll  period  add  up  the  hours  and  amounts  for  each 


symbol,  take  the  total  of  the  amount  and  compare  it  with 
the  total  pay  roll  of  the  shop.  A  Blacksmith  Shop  Labor 
Distribution  Sheet  is  then  made  out  which  is  used  as  needed 
by  the  Cost,  Accounting  and  Statistics  Departments. 

STORES   ACCOUNT 

"Stores"  in  the  factory  ledger  may  include  all  raw  mate- 
rials that  are  to  be  used  in  manufacture  of  the  product,  all 
partly  worked  materials  that  have  been  returned  from  the 
shop  to  the  stores  for  safe-keeping  until  they  are  needed 
again  in  the  shop  for  further  operations,  all  finished  parts, 
whether  purchased  or  made  in  the  shop,  that  are  to  be  kept 
until  they  are  to  be  assembled  into  finished  products,  also 
all  supplies,  such  as  fuel,  small  hand  tools  and  other  things 
that  are,  when  issued  to  the  several  departments,  to  be 
charged  to  expense  accounts;  or,  if  desired,  separate  accounts 
may  be  opened  for  each  class  of  these  items,  such  as  raw 
material,  partly  worked  material,  finished  parts,  fuel,  sup- 
plies, etc.  In  the  latter  case  numerous  transfer  entries  are 
needed,  as  will  be  shown  below,  as  the  materials  progress  from 
one  stage  of  work  to  another. 

The  accounting  will  be  simplified  if  all  the  materials  for 
which  the  storekeeper  is  responsible  are  kept  in  one  stores 
account  in  the  General  Factory  Ledger,  the  subdivisions  being 
taken  care  of  in  the  continuous  Inventory  cards,  which  are 
properly  classified.  The  work  in  progress  through  the  shop, 
for  which  the  department  foremen  are  responsible,  is  kept 
in  "  Work  in  Process,"  or  "  Work  in  Shop,"  and  the  finished 
goods,  ready  for  sale,  under  the  care  of  the  warehouseman 
are  kept  in  "  Finished  Product  "  or  "  Warehouse  "  account. 

Suppose  a  production  order  is  issued  in  an  engine  building 
shop  for  making  for  stock  several  engines  of  one  class  and 
size,  and  job  tickets  are  made  out  for  all  the  operations 
required.  The  order  is  not  to  be  rushed  through  the  shop, 
and  as  different  parts  are  made  or  partly  made,  they  may  be 
kept  in  the  store  until  needed  for  further  operations  or  for 
assembling.  As  the  work  progresses  the  job  tickets  are 
returned  from  the  shop  first  to  the  pay-roll  clerk,  and  then  to 
the  cost  and  accounting  clerk,  who,  after  figuring  up  the  cost 
for  labor,  material  and  burden  on  each  ticket,  and  making 
the  proper  entries  on  the  Piece  Cost,  Group  Cost,  and  Fin- 
ished Product  Cost  cards,  makes  the  monthly  accounting 
entries  from  the  statement  of  transactions  given  on  the 
following  page,  which  is  made  up  from  the  adding  machine 
totals  of  the  job  tickets  for  the  month: 

Petty  Stores.  It  is  well  to  have  an  inflexible  rule  for 
the  storekeeper  that  nothing  is  to  be  given  out  from  the  stores 
without  an  order,  receipt  or  some  sort  of  memorandum  or 
check  representing  it.  To  lessen  the  work  of  accounting, 
however,  such  small  items  as  cost  only  a  few  cents  each, 
which  are  chargeable  not  directly  to  product  but  indirectly 
to  burden,  may  be  lumped  together  and  charged  to  general 
burden  or  to  departmental  burdens  at  the  end  of  each  month. 
The  memorandums  as  they  are  received  may  be  filed  in  a 
box  with  numerous  labeled  partitions  or  pigeonholes,  classified 
by  departments  or  by  the  kinds  of  material  issued,  and 
taken  out  and  totaled  at  the  end  of  the  month. 


52 


BOOKKEEPING  AND  COST  ACCOUNTING 


-, 


Transactions 


Journal  Entries 


First  Method 

Second  Method 

Work   on   $500  raw   material,    Labor   $1000,    Burden 
$1000 

Work  in  Process 
To  Stores 
To  Labor 
To  Burden 

2500 

500 
1000 
1000 

Work  in  Process 
To  Stores 
To  Labor 
To  Burden 

2500 

500 
1000 
1000 

Put  $1200  of  the  product  into  stores,  as  partly  worked 
material 

Partly  worked  material 
To  Work  in  Process 

1200 

1200 

Stores 

To  Work  in  Process 

1200 

1200 

Work  on  $100  raw  material,  $800  work  in  process  in  thp] 
shop,  $600  part  worked  material,  $200  Labor,  $200 
Burden.     Put  all  in  stores,  as  finished  parts 

Fin.  Parts 
To  Stores 
To  Work  in  Process 
To  Part  W.M. 
To  Labor 
To  Burden 

1900 

100 
600 
600 
200 
200 

Work  in  Process 
To  Stores 
To  Labor 
To  Burden 

1100 

700 
200 
200 

Stores 

To  Work  in  Process 

1900 

1900 

Assembling  Job.  $50  R.M.  from  store,    $200  work  in 
Process  in  the  shop,   $400  Partly  worked  material 
from  store,  $1 500  Finished   parts,   from   store,  $100 
Labor,  $100  Burden.     Put  all  in  warehouse. 

Fin.  Product 
To  Stores 

To  Work  in  Process 
To  Partly  worked  matl. 
To  Fin.  Parts 
To  Labor 
To  Burden 

2350 

50 
200 
400 
1500 

100 
100 

Work  in  Process 
To  Stores 
To  Labor 
To  Burden 

2150 

1950 
100 
100 

Fin.  Product 
To  Work  in  Process 

2350 

2350 

Journal  Ledger 

First  Method 
Credit  Accts. 


Debit 

Stores 

Labor 

Bur- 
den 

Wk.  in 
Proc. 

Part 
Wkd. 
Mat'] 

Fin. 
Parts 

Fin. 
Prod. 

Total 
Dr. 

Wk.  in  P. 
Pt.  wkd.  M. 
Fin.  parts 
Fin.  prod. 

500 

100 
50 

1000 

200 
100 

1000 

200 
100 

1200 
800 
200 

600 
400 

1500 

2500 
1200 
1900 
2350 

Total  Cr. 
Dr. 

650 

1300 

1300 

2200 
2500 

1000 
1200 

1500 
1900 

2350 

7950 
7950 

Dr.  bal. 
Cr.  bal. 

650 

1300 

1300 

300 

200 

400 

2350 

3250 
3250 

Second  Method 


Stores 

Labor 

Burden 

Wk.  in 
Proc. 

Fin. 
Prod. 

Total 

Stores 
Wk.  in  P. 
Fin.  Prod. 

3150 

1300 

1300 

3100 
2350 

3100 
5750 
2350 

Totals,  Cr. 
Dr. 

3150 
3100 

1300 

1300 

5450 
5750 

2350 

11200 

Dr.  bal. 
Cr.  bal. 

50 

1300 

1300 

300 

2350 

2650 
2650 

Attention  is  called  to  the  extreme  simplicity  of  the  second 
method.  Not  only  are  all  the  journal  entries  dispensed 
with,  but  the  whole  of  the  ledger  work  consists  in  entering 
on  a  printed  blank  only  five  figures,  viz.:  3100,  3150,  1300, 
1300  and  2350,  the  totaling  of  the  horizontal  lines  and  the 
vertical  columns,  and  the  entering  of  the  balances.    The 


figure  3100  is  the  adding  machine  total  of  the  entries  on  the 
job  tickets  of  partly  worked  material  and  finished  parts  put 
in  stoves;  the  figures  3150,  1300,  1300  are  the  totals  of  the 
entries  on  the  job  tickets  of  material  of  all  kinds,  raw,  partly 
finished  or  finished,  received  from  stores,  and  of  labor  and 
burden.  The  figure  2350  is  the  total  of  the  entries  on  the 
assembly  job  tickets  of  finished  goods  delivered  to  the  ware- 
house. The  whole  result  of  the  operations  is  shown  in  the 
last  two  lines  of  the  sheet.  We  have  spent  $1300  for  labor, 
$1300  for  burden  and  have  reduced  the  store  inventory 
$50,  a  total  expenditure  of  $2650,  and  we  have  to  show  for 
it  $300  increase  of  work  in  process  and  $2350  increase  of 
finished  goods  in  the  warehouse. 

Valuation  of  Stores 

The  best  accounting  uses  costs  as  a  basis.  An  increase  in 
values  in  a  thing  still  held  is  not  profit.  Profit  cannot  arise 
until  a  thing  is  sold. — W.  M.  Cole,  Accounts,  their  Construc- 
tion and  Interpretations,  p.  159. 

A  rigid  adherence  to  this  rule  might  lead  to  no  end  of  con- 
fusion in  the  estimation  of  profits  and  losses  in  a  manufac- 
turing business  in  times  of  violent  fluctuations  in  market 
prices. 

Suppose  a  concern  making  electric  motors  in  1916  used  in 
some  of  them  an  old  stock  of  copper  wire  purchased  in  1915 
at  25  cents  a  pound  and  in  others  used  wire  pur- 
chased at  various  dates  in  1916  at  prices  advancing  from  30 
to  40  cents.  In  taking  an  inventory  January,  1917,  shall 
the  motors  be  valued  at  different  costs  depending  upon  the 
date  at  which  the  wire  in  them  was  bought,  or  shall  they  all 
be  valued  on  the  basis  of  the  latest  market  price  of  wire? 
It  is  well  generally  "  not  to  count  chickens  before  they  are 
hatched,"  and  to  err,  if  at  all,  on  the  safe  side  in  fixing  inven- 
tory values,  but  in  such  a  case  as  the  one  above  men- 
tioned a  profit  does  arise  before  a  sale  is  made.     The  cost  that 


COST  ACCOUNTING 


53 


should  be  used  in  taking  an  inventory,  and  in  fixing  a  base 
on  which  to  figure  the  minimum  selling  price,  is  not  the 
post  mortem  cost,  but  the  present  estimated  cost  of  repro- 
duction, based  on  present  costs  of  material  and  labor.  The 
advance  in  market  values  of  material  in  stores,  or  of  finished 
goods  in  the  warehouse  in  1916  should  be  credited  to  Profit 
and  Loss,  of  1916,  when  the  inventory  of  January  1,  1917,  is 
taken;  otherwise  when  they  are  sold  at  high  prices  later  the 
business  of  1917  will  show  a  greater  profit  than  was  really 
made  in  that  year. 

In  the  Profit  and  Loss  statement  of  1916  the  fact  should  be 
recorded  that  the  gross  profit  was  not  all  due  to  manufacturing 
but  that  some  of  it  was  due  to  advance  in  values  of  raw  mate- 
rial, and  the  fact  thus  recorded  should  be  considered  before 
declaring  a  dividend. 

The  same  material  may  sometimes  be  transferred  back 
and  forth  several  times  between  the  stores  and  the  shop,  so 
that  the  monthly  totals  of  Stores  Account  and  the  Work  in 
Process  account  do  not  show  a  record  either  of  business 
transactions  or  of  the  amount  of  work  done  in  the  shop,  the 
entries  being  mostly  of  transfers  of  material  from  one  place 
to  another.  The  balances  of  the  two  accounts  added  together 
show  the  cost  values  of  all  the  material,  raw  or  partly  finished, 
and  the  balance  of  Finished  Product  (or  Warehouse  Account) 
shows  the  cost  value  of  products  on  hand  and  ready  for  ship- 
ment. The  entry  Stores  to  Accounts  Payable  *  is  a  business 
record  of  monthly  purchases,  the  entry  Finished  Product  to 
Stores  and  to  Works  in  Process  is  a  factory  record  of  the 
amount  of  goods  finished  during  the  month,  and  the  entry 
Sales  Account  to  Finished  Product  is  a  business  record  of 
the  cost  value  of  the  goods  shipped. 

Inventory  of  Warehouse  and  Stores 

Suppose  a  concern  makes  an  annual  product  costing 
$200,000,  and  that  one-half  of  the  total  product  is  on  hand 
at  the  end  of  the  year,  estimated  to  have  cost  $100,000. 

The  $200,000  cost  of  product  is  made  up  of  material 
$80,000;  Labor,  $55,000;  Burden,  $65,000,  and  on  account 
of  the  burden  on  all  portions  of  the  product  being  figured  on 
the  uniform  percentage  of  labor  basis  it  is  estimated  that 
one-half  of  the  product,  costing  $40,000  for  material  and 
$27,500  for  labor  should  have  half  of  the  total  burden  appor- 
tioned to  it,  making  the  total  cost  $100,000.  But  suppose 
that  a  more  accurate  method  of  apportioning  burden  should 
show  that  the  $200,000  total  cost  should  be  distributed  over 
three  classes  of  product  A,  B  and  C,  as  follows: 


Now,  when  the  inventory  of  half  the  product,  costing 
$40,000  for  material,  is  taken  it  may  be  found  to  consist  of 
different  proportions  of  A,  B,  and  C,  giving  rise  to  valuations 
that  may  differ  widely  from  $100,000,  for  example: 


Material 

Labor 

Burden 

Total 

A 

B 

20,000 
40,000 
20,000 

20,000 
20,000 
15.000 

30,000 
20,000 
15,000 

70,000 
80,000 

C. . . 

50,000 

80,000 

55,000 

65,000 

200,000 

Material 

Labor 

Hurden 

Total 

H  of  A,  B,  and  C. 

All  of  B 

A  and  C 

40,000 
40,000 
40,000 
40,000 
40,000 

27,500 
20.000 
35,000 
30.000 
25,000 

32,500 
20,000 
45,000 
40.000 
25,000 

100,000 
80.000 
1 20.000 

A  and  J3  B 

CandHB 

110.000 
90.000 

*  Or  Stores  to  Company  (or  Private  Ledger)  if  the  factory  books 
are  separate  from  the  general  or  financial  books.  In  this  case  the 
entry  in  the  general  books  is  Factory  Operating  Account  to  Ac- 
counts Payable. 


Showing  a  possible  difference  of  $20,000  above  or  below  the 
$100,000  valuation  based  on  the  common  method  of  appor- 
tioning burden,  or  20  per  cent  of  the  total  annual  cost  of  pro- 
duction. 

Inventory  Valuations  of  Stores,  of  Partly  Finished  Work, 
and  Products  in  Warehouse.  The  profit  or  loss  of  a  busi- 
ness, as  established  by  the  books  depends  on  the  inventory 
valuations,  and  these  will  vary  according  to  the  theory 
upon  which  valuations  are  made,  viz. : 

1.  At  cost  as  shown  by  the  books. 

2.  At  the  probable  cost  of  reproduction. 

3.  At  the  standard  cost  of  a  normal  year  or  average  of  a 
five-year  period,  called  "  Record  Costs "  or  "  Five-year 
Standard  Cost." 

4.  At  this  standard  cost  plus  or  minus  a  percentage  to  cover 
advance  or  reduction  in  costs  of  labor,  material  or  burden 
since  the  standard  cost  was  recorded. 

5.  At  the  market  or  selling  price  less  a  percentage  esti- 
mated to  cover  normal  selling  costs  and  normal  profit.  In  a 
business  making  a  great  variety  of  products,  No.  5  will 
rarely  give  valuations  that  do  not  differ  widely  from  factory 
costs,  for  it  is  practically  impossible  to  apportion  even 
approximately  the  total  selling  expenses  to  the  different 
items  of  product.  The  valuations  on  Nos.  1,  2,  3  and  4  bases 
will  depend  largely  upon  the  method  of  distributing  the  fac- 
tory burden.  When  the  amount  of  the  inventory  is  a  large 
fraction  of  the  total  annual  product  an  error  in  the  method  of 
distributing  may  lead  to  great  errors  in  the  inventory  values, 
which,  if  they  do  not  balance  each  other,  may  lead  to  dan- 
gerous conclusions  in  regard  to  profits  on  the  business  and 
as  to  the  amount  of  dividend  that  may  safely  be  declared. 

On  this  account  it  is  advisable  that  the  annual  inventory, 
on  which  the  yearly  profits  available  for  dividends  are  based, 
should  be  taken  at  a  time  of  the  year  when  the  value  of  the 
goods  in  the  warehouse  and  of  the  work  in  process  is  apt  to 
be  at  its  minimum,  and  when  the  error  in  the  total  of  the 
inventory  valuation  is,  therefore,  also  likely  to  be  a  minimum. 

Checking  the  Continuous  Inventory 

If  a  continuous  or  "  perpetual  "  inventory  is  kept  on  ranis 
properly  filed,  or  in  a  loose-leaf  Balance  of  Stores  Book,  and 
is  checked  at  frequent  intervals  by  actual  counting,  measuring 
or  weighing  the  goods,  or  stores,  on  hand,  there  is  no  need  of 
shutting  down  the  factory  to  take  the  annual  inventory. 

Some  system  should  be  adopted  to  insure  that  each  bin,  or 


54 


BOOKKEEPING  AND  COST  ACCOUNTING 


other  place  for  storing  materials,  should  receive  proper 
attention  from  the  storekeeper's  assistants,  and  that  at  least 
two  or  three  times  during  the  year  its  contents  are  inspected 
and  compared  with  the  balance  shown  on  the  bin  card.  As 
each  bin  is  inspected,  a  memorandum,  giving  the  symbol  of 
the  article,  the  quantity  found  in  the  bin,  and  the  date, 
should  be  written  and  sent  to  the  balance  of  stores  clerk  for 
comparison  with  his  records. 

The  best  time  to  inspect  a  bin,  and  check  the  bin  card,  is 
when  it  is  empty  or  nearly  empty.  If  the  inspector  tacks  a 
small  card,  of  a  different  color  for  each  month  of  the  year, 
on  each  bin,  after  he  inspects  it,  he  will  have  a  continuous 
reminder,  as  often  as  he  walks  past  it,  of  the  time  that  has 
elapsed  since  the  bin  was  last  inspected. 

COST-KEEPING   BY  PIECES   OF  PAPER 

Modern  bookkeeping  and  cost-keeping  show  a  tendency 
to  dispense  with  books,  pens  and  ink,  and  laborious  tran- 
scribing from  one  book  to  another  and  to  use  instead  printed 
blanks,  typewriters,  adding  and  billing  machines,  and  filing 
cases.  Take  the  example  of  what  is  done  in  a  shop  building 
steam  engines: 

(1)  The  general  office  sends  to  the  factory  a  printed  blank 
with  a  typewritten  order.  "  Build  for  stock  twelve  engines 
Class  A,  size  10x12  in.,  date,  March  1,  1910.  Deliver  in 
warehouse  on  or  before  July  1st." 

(2.)  The  Production  Department  takes  from  a  pigeonhole 
or  file  case  a  mimeographed  sheet  headed  Schedule  EA, 
10X12  in.  which  contains  a  complete  list  of  all  the  parts 
that  go  into  such  an  engine,  specif ying  for  each  part  its  name, 
symbol,  size,  drawing  and  pattern  number  or  symbol,  kind 
of  metal,  which  also  has  columns  headed:  Date  ordered, 
From  whom  Ordered,  Date  to  be  delivered,  Date  received. 
It  fills  out  in  the  proper  column  the  number  of  individual 
pieces  of  each  kind  required  for  twelve  engines,  and  sends  it 
to  the  storekeeper,  placing  (1)  in  the  "  Unfilled  orders " 
file. 

(3)  The  storekeeper  takes  from  his  inventory  file  the  sheets 
of  Balance  of  Stores  that  correspond  to  the  piece  symbols 
marked  on  the  schedule  that  may  be  kept  in  stock,  and  enters 
on  them  the  number  of  pieces  that  are  to  be  reserved  for  this 
particular  order  and  marks  on  the  schedule  in  the  column 
"  from  whom  ordered  "  the  words  "  in  stock  "  or  "  in  stock 
4,  wanted  8  "  (or  as  many  as  may  be  wanted),  and  returns 
the  schedule  to  the  Production  Department. 

(4)  The  production  clerk  takes  a  lot  of  order  blanks  and 
writes  in  triplicate  (using  carbon  paper)  orders  for  the 
materials  or  finished  parts  (such  as  bolts)  that  are  to  be 
purchased  from  outside  concerns,  as  shown  by  the  schedule, 
stating  the  dates  at  which  each  lot  of  material  is  to  be  de- 
livered to  the  factory,  and  sends  these  orders  to  the  Pur- 
chasing Agent. 

(5)  The  production  clerk  takes  from  another  file  blanks 
for  factory  production  orders  for  each  piece  or  lot  of  pieces 
of  one  kind  to  be  made.  As  these  pieces  have  been  stand- 
ardized as  to  patterns  and  operations  the  blanks  may  be 
printed  or  mimeographed  with  all  details,  and  require  to 
have  written  in  ink  only  the  date  of  issue,  serial  numbers 


of  the  office  and  factory  orders,  number  of  pieces  to  be  made, 
and  date  foi  delivering  to  the  storeroom  or  assembling  floor. 

(6)  Job  tickets  are  then  made  out  for  each  operation  or 
group  of  operations  to  be  performed  by  one  man,  corre- 
sponding to  each  of  the  several  production  orders.  These 
tickets  may  be  so  printed  as  to  serve  several  distinct  functions, 
viz.:  (a)  an  order  on  the  storekeeper  for  the  material,  a 
payroll  record  showing  the  date  at  which  the  operation  was 
performed,  the  time  of  the  man  and  of  the  machine,  his 
wages  or  piece  work  payment,  and  the  machine  or  other 
burden,  thus  making  the  job  ticket  also  a  cost  ticket  for  the 
operation.  It  may  have  a  move  coupon  attached  to  be 
given  to  the  "  move  man,"  containing  an  order  to  move  the 
piece  or  pieces  to  the  next  machine,  to  the  storeroom,  or  to 
the  assembling-room  floor. 

The  job  ticket  is  the  most  important  element  in  the  modern 
cost  system  of  factories  that  make  an  "  assembled  "  product. 
The  job  tickets  may  be  made  out,  or  partly  made  out,  long 
in  advance  of  the  time  when  they  are  needed,  and  put  in  a 
file  on  "  jobs  waiting  assignment  "  until  the  time  arrives  for 
them  to  be  put  on  the  bulletin  board  of  "  jobs  in  factory  " 
and  "  jobs  ahead." 

(7)  Instruction  cards  corresponding  to  each  job  are  on  file 
and  they  go  with  the  job  ticket  to  the  workman  or  are  put  on 
a  board  in  the  workroom  for  his  inspection. 

(S)  Bills  begin  to  come  in  for  the  goods  purchased.  They 
take  the  regular  course  of  verification  and  are  then  filed 
alphabetically  in  the  file  of  "  bills  unpaid  "  or  bills  to  be 
certified  for  payment. 

(9)  The  storekeeper  or  receiving  clerk  fills  out  a  blank  for 
each  lot  of  goods  received  from  outside  parties,  has  it  ap- 
proved, if  required  by  the  inspector  of  material,  and  sends  it 
to  the  factory  office  where  it  is  compared  with  the  bill  (8). 

(10)  The  cost  clerk  takes  the  blank  (9)  and  enters  on  it  the 
unit  cost  of  each  kind  of  material  with  a  proper  addition  for 
freight,  express,  storage,  depreciation,  etc.,  if  that  is  the 
custom  of  the  factory,  and  sends  it  to  the  storekeeper  or 
balance  of  stores  clerk  who  enters  it  in  his  balance  of  stores 
sheets  or  perpetual  inventory. 

(11)  Mcnthly  statements  of  the  bills  (8)  come  in  at  the 
beginning  of  the  month;  they  are  compared  with  the  bills, 
and,  if  correct,  are  certified  to  the  treasurer  or  cashier  of  the 
company.  If  bills  are  to  be  paid  promptly,  in  order  to  obtain 
prompt  cash  discounts,  a  statement  is  made  out  from  the 
bills  and  certified  for  prompt  payment. 

(12)  After  the  bills  are  paid  they  are  arranged  alpha- 
betically by  names  of  dealers  and  in  the  order  of  dates  for 
each  dealer  and  filed  permanently  in  the  Paid  Bills  file. 

(13)  The  cashier  pays  the  bills  with  voucher  checks, 
that  is  ordinary  bank  checks  with  the  words  "  In  payment  of 
your  bills  of  (date)"  or  statement  of  (date).  Before  the  bills 
are  filed,  a  rubber  stamp  legend  (or  a  slip  pasted  on  the  bill) 
is  filled  out  with  the  names  of  the  account  or  accounts  to 
which  the  bill  is  to  be  charged  in  the  Accounts  PayableBook. 

(14)  The  voucher  checks  are  all  entered  in  the  Check 
Register,  which  in  large  concerns  takes  the  place  of  the 
right-hand  side  of  the  Cash  Book. 

(15)  When  the  work  of  production  is  started  in  the  factory 


COST  ACCOUNTING 


55 


the  job  ticket  is  sent  to  the  storekeeper  as  a  warrant  for  his 
issuing  the  material  that  it  calls  for,  or  else  a  Requisition 
is  made  for  it.  This  requisition  to  be  returned  to  the  cost 
clerk,  or  a  separate  bill  is  to  be  made  for  the  material  deliv- 
ered with  the  price  at  which  the  material  is  to  be  charged  to 
the  job.  The  bill  is  to  be  charged  on  the  job  tickets  and 
credited  on  the  stores  inventory. 

(16)  If  any  material  that  has  been  charged  to  a  job  is 
returned  to  the  stores,  such  as  surplus  material  or  scrap,  a 
Credit  Card  is  sent  with  it  for  entry  in  the  Inventory  and 
credit  on  the  Job  tickets. 

(17)  Time  tickets  or  job  tickets  are  returned  from  the 
factory  as  the  work  progresses.  They  are  sorted  first  to  the 
names  of  the  workmen,  so  that  the  Pay  Roll  may  be  made 
out,  and  then  sorted  by  job  numbers  or  symbols  so  that  the 
cost  of  each  job  may  be  determined.  The  job  totals  are 
then  added  on  the  adding  machine,  together  with  the  charges 
for  burden,  and  the  charges  for  material  if  they  are  on  the 
job  ticket.  The  sum  of  labor,  burden  and  material  on  the 
job  tickets  for  one  week  must  equal  the  total  of  the  jobs 
for  the  same  period.  The  total  of  the  burden  figures  is 
entered  on  the  memorandum  book  of  Distributed  Burden. 

(18)  The  job  tickets  belonging  to  each  piece  or  lot  of  pieces 
of  the  same  kind  are  brought  together,  and  when  the  piece, 
or  lot  of  pieces,  is  finished  and  ready  for  delivery  to  the 
storeroom  or  to  the  assembly  floor  a  Piece  Cost  Card  is 
made  out,  giving  date,  piece  symbol,  number  of  pieces  in 
the  lot,  average  cost  per  piece  for  material,  labor,  burden 
and  total.  This  cost  card  is  sent  to  the  storekeeper  for 
entry  in  the  Balance  of  Stores  or  Perpetual  Inventory,  after 
which  it  is  filed  permanently  in  the  Piece  Cost  file.  The 
same  cost  card  may  be  used  at  subsequent  dates  when  other 
pieces  of  the  same  kind  are  ordered. 

(19)  When  enough  parts  have  been  made  so  that  "  group 
assembling  "  may  be  begun  (that  is,  putting  together  of  cer- 
tain parts  that  belong  together,  such  as  "  base  and  cylinder 
group,"  "  shaft  group  "  or  "  governor  group  "),  an  assembly 
job  ticket  is  made  out,  which  serves  as  a  requisition  on  the 
storekeeper  for  the  pieces  belonging  to  the  group,  and  for  a 
job  and  time  ticket  for  the  work  of  assembling.  •  A  similar 
assembly  job  ticket  is  made  out  for  the  assembling  of  the 
groups  into  complete  engines  and  for  the  finishing  of  the 
engines  for  delivery  to  the  warehouse.  These  tickets  take 
the  same  course  as  that  of  the  operation  job  tickets,  described 
under  (6),  (17),  and  (18). 

(20)  A  Finished  Product  Cost  Card  (or  Engine  Cost  Card) 
is  made  out  from  the  information  contained  in  the  Piece 
Cost  Cards  and  in  the  Assembly  Job  Tickets,  giving  the  cost 
of  the  engines  complete.  This  is  entered  in  the  Warehouse 
Inventory,  and  the  card  is  placed  in  the  file  of  costs  of  Fin- 
ished Product. 

The  Cost  System  is  now  complete  except  as  to  the  method 
of  computing  and  distributing  burden.  It  includes  the 
filling  out  and  handling  of  the  following  cards,  sheets  or 
other  pieces  of  paper: 

1.  Office  Order. 

2.  Schedule  of  Parts. 

3.  Inventory  or  Balance  of  Stores. 


4.  Orders  for  Materials. 

5.  Factory  Production  Orders. 

6.  Job  Tickets  for  Operations. 

7.  Instruction  Cards. 

8.  Bills  for  Goods  Purchased. 

9.  Blanks  for  Goods  Received. 

10.  Monthly  Statement  of  Bills. 

11.  Voucher  Checks  or  Vouchers  to  be  paid  by  the  Gen- 

eral Office. 

13.  Credit  cards  for  material  returned. 

14.  Pay  Rolls. 

15.  Piece  Cost  Cards. 

16.  Assembly  Job  Tickets. 

17.  Engine  Cost  Cards. 

Besides  these  cards  there  are  bound  books  that 
are  connected  with  the  system. 

18.  Accounts  Payable  Book. 

19.  Burden  Distribution  Book. 

20.  Petty  Cash  Book  for  minor  cash  receipts  and  pay- 

ments by  the  factory. 

The  Cash  Book  and  Check  Register  are  not  included,  as 
they  are  handled  by  the  General  Office  and  not  by  the 
factory  office. 

Provided  that  the  factory  expense  has  been  properly  com- 
puted and  distributed  to  the  job  tickets  according  to  the 
method  in  use  in  the  factory,  the  blanks  have  been  properly 
filled  out  and  that  no  arithmetical  errors  have  been  made, 
this  system  shows  what  was  the  cost  of  the  engines  and 
what  was  the  cost  of  each  piece  and  each  operation  on  each 
piece. 

These  blanks,  however,  are  not  all  necessary  for  the  account- 
ing system;  many  of  them  are  required  for  administrative 
purposes,  that  is  for  getting  the  order  .systematically  car- 
ried ftirough  the  shop  without  any  reference  to  costing 
or  accounting. 

We  may  have  the  production  department  entirely  separate 
from  the  cost  department,  the  former  being  charged  with 
the  duty  of  getting  the  engines  built  within  the  prescribed 
time  and  the  latter  with  the  duty  of  reporting  the  costs. 
The  blanks  required  by  the  two  departments  then  would  be: 

Production  Department. 

(1)  Office  Order. 

(2)  Schedule  of  Parts. 

(3)  Inventory. 

(4)  Orders  for  Materials. 

(5)  Factory-production  Orders. 

(6)  Job  Tickets  for  Operations. 

(7)  Instruction  Cards. 

(12)  Requisitions  on  Storekeeper. 

(16)  Assembly  Job  Tickets. 

(4a)  Replacement  orders  for  spoiled  work. 

Cost  Accounting  Department. 
(3)  Inventory  (for  prices  of  materials). 

(8)  Bills  for  goods  Purchased. 
(14)  Pay  Rolls. 


56 


BOOKKEEPING  AND   COST  ACCOUNTING 


(12)  Requisitions  on  storekeeper. 

(For  prices  of  materials  delivered  by  storekeeper.) 

(13)  Credit  cards  for  materials  returned. 
(15)  Piece  Cost  Cards. 

(17)  Engine  Cost  Cards. 

(19)  Burden  Distribution  Book. 

(20)  Petty  Cash"  Book. 

The  Accounts  Payable  Book  (18),  Monthly  Statements 
(10),  Vouchers  (11),  and  the  Cash  Book  and  Check  Register 
are  not  included  in  either  of  these  two  lists,  since  they  belong 
to  the  Financial  Department. 

Limitation  of  the  Cost  Accountant 

With  the  above-mentioned  seven  blanks  and  three  books 
properly  filled  out  and  filed  the  cost  accountant  is  in  position 
to  answer  any  reasonable  question  that  may  be  asked  by  the 
officers  of  the  Company  as  to  what  uas  the  cost  of  the  engines, 
of  the  parts,  and  of  the  operations,  and  also  what  is  the 
recorded  cost  or  inventory  value  of  raw  material  or  of  fin- 
ished parts  in  stores.  They  give  him  all  the  data  that  are 
needed  for  this  purpose.  He  is  also  in  position  to  make  such 
statistical  sheets,  reports  or  charts  as  may  be  required, 
giving  monthly  (or  other  periodica])  total  of  expenditures  for 


material,  labor,  supplies,  or  burden,  and  comparisons  of 
present  costs  with  past  costs  or  with  standard  or  predeter- 
mined costs  that  may  have  been  made  by  the  drafting  or  plan- 
ning department.  He  is  also  able  to  say  whether  certain 
fluctuations  in  cost  are  due  to  changes  in  the  market  price 
of  materials  or  to  changes  in  wages  or  burden.  He  may  alsc 
give  to  the  financial  department  the  figures  to  be  entered 
in  the  monthly  journal  entries  of  the  books  of  the  general 
office  for  the  purpose  of  "  tying  the  cost-books  to  the  Gen- 
eral Ledger." 

He  is  not  able,  however,  to  say  that  the  costs  that  he  reports 
are  "  true  costs."  They  are  true  only  to  the  extent  that  the 
theory  and  method  of  estimating  depreciation  and  of  dis- 
tributing burden  are  correct  and  true,  which  they  never  are, 
they  are  only  approximations. 

The  most  accurate  cost  accounting  system  that  deals  with 
past  events  is  but  a  historical  record.  It  does  not  deal  with 
the  causes  of  these  events,  and  it  is  not  able  to  predict  or  to 
plan  for  future  events.  It  cannot  show  that  the  unduly  high 
cost  of  an  engine  was  due  to  any  kind  of  bad  management  in 
the  planning  room,  to  defective  tools,  to  incompetent  fore- 
men or  unskillful  workmen.  These  are  matters  for  the  man- 
agement to  investigate  after  inspection  of  the  cost  account- 
ant's and  statistician's  figures. 


CHAPTER  VII 


COST-FINDING  METHODS.     USE  OF  THE   JOB  TICKET 


Time  Tickets 

Time  tickets  may  be  made  out  on  either  one  of  the  fol- 
lowing systems: 

1.  One  ticket  per  man  per  week,  showing  all  the  jobs  he 
works  on  during  the  week,  with  the  time  used  on  each  job. 

2.  One  ticket  per  man  per  day,  showing  all  the  jobs  the 
man  worked  on  that  day. 


3.  One  ticket  per  man  for  each  job  that  is  worked  on  that 
day. 

4.  One  ticket  for  each  man  for  each  job,  whether  it  is  done 
in  a  fraction  of  an  hour,  or  whether  it  takes  a  whole  week. 
If  the  job  runs  over  a  week  a  continuation  ticket  is  issued 
for  each  succeeding  week. 

Combined  Time  and  Job  Ticket.  Form  M 1  shows  the  two 
sides  of  a  combined  time  and  job  ticket  used  by  the  Miller 


3 

Employee  No 

313 

Order              j, 
No'            1200 

John  Doe 

Week  Ending 
12/6 /IS 

Lock                       

No. 

Part 

Lid 

Operation 

Trim 

Mach. 

Tool 

Foreman's  O.K.. 

o 

2030       Units 

Start 

Hoi 

2 

rs 

8 

45.00 

Weighed  by 

Stop 

42.2 

Foreman's  O.K. 

o 

Lbs. 
Units 

Start 

Weighed  by 

Stop 

Foreman's  O.K. 

o 

Lbs. 
Units 

Start 

Weighed  by 

Stop 

Foreman's  O.K. 

o 

Lbs. 
Units 

Start 

Weighed  by 

Stop 

Foreman's  O.K. 

o 

Zbs. 
Units 

Start 

Weighed  by 

Stop 

TOTAL 

2030       Units 

Total 
Hours 

2 

8 

Code 

514 

RATE 

.03 

22 

PIECE 
WORK 

VALUE 

ei 

THIS  SIDE 

Form  No.178-I0-1G.50  >I..\:.I, 

UP  FOR  START  AND  STOP 

Morn. 
IN 

Bfl 

- 
c 
-. 
c 
n 
«< 

Morn. 
IN 

Noon 

our 

Noon 
OUT 

Morn. 
IN 

-z 
C 
0 

% 

Noon 

IN 

Noon 
OUT 

Night 
OL   I 

Noon 
IN 

<L 

B 

fl> 
0. 

<< 

Morn, 
IN 

13. UJ 

Night 
OUT 

Noon 
OL1  1 

IN 

0) 

E 
F 

M 

a 

Noon 
IN 

OUT 

Night 

our 

IN 

B 

a 

a 

Morn. 
IN 

OUT 

Noon 
OUT 

IN 

s 

e 

a 
M 

Noon 
IN 

OUT 

Night 
OUT 

IN 

- 

Morn. 
IN 

OUT 

Noon 
OUT 

IN 

Noon 
IN 

OUT 

Night 
OUT 

THIS  SIDE  UP  FOR 
IN   AND   OUT 

Form  Ml.     Combined  Time  and  Job  Ticket. 


Lock  Co.  A  card  is  used  for  each  separate  job  whether  it 
lasts  a  fraction  of  an  hour  or  runs  over  several  days,  but  if  the 
job  is  not  finished  at  the  end  of  the  week  the  card  is  returned 
to  the  cost  department  and  a  new  card  is  issued.  While  the 
work  is  in  progress  the  card  is  kept  at  the  desk  of  the  foreman 
of  the  room  in  which  the  work  is  done.  A  time  clock  stamps 
the  starting  and  stopping  time  on  the  front  or  job  side  of  the 
card,  and  the  in  and  out  times  are  stamped  on  the  other  side, 
on  which  the  days  of  the  week  are  printed.  The  size  of 
the  card  is  5§  x3|  in. 

The  clock  registers  hours  and  tenths.  It  runs  backwards, 
starting  at  55  o'clock  at  7  a.m.  Tuesday  morning  (the  time- 
keeping week  begins  on  Tuesday)  registers  50.0  at  noon,  and 
also  at  1  p.m.,  stopping  during  the  noon  hour,  and  45.0  at 


6  p.m.  and  also  on  Wednesday  at  7  a.m.,  stopping  during  the 
night.  On  Saturday  it  registers  only  5  hours,  from  15.0  to 
10.0,  and  on  Monday  10  hours  from  10.0  to  0.0.  The  time 
clock  calculates  the  elapsed  time  by  subtracting  the  "  stop  " 
from  the  "  start  "  time.  As  shown  in  Fig.  3  which  is 
John  Doe's  No.  3  card  for  the  week,  the  job  was  started 
at  45.0  and  stopped  at  42.2,  the  elapsed  time  being  2.8  hours. 
On  the  other  side  of  the  card  only  one  figure  is  shown,  45.0, 
the  man's  "  in  "  time  on  Wednesday  morning.  His  next 
job  card  No.  4  shows  three  time  figures,  noon  out  40.0,  noon 
in  40.0  and  night  out  35.0. 

The  cards  have  large  figures  1  to  10,  printed  on  the  upper 
left-hand  corner  to  indicate  the  number  of  the  jobs  done  by 
the  man  during  the  week,  starting  with  No.  1  on  Tuesday 


57 


58 


BOOKKEEPING  AND   COST   ACCOUNTING 


morning.  Some  cards  are  provided  with  the  place  for  the 
figure  left  blank,  to  be  filled  in  with  ink  in  case  a  man  has 
more  than  ten  jobs  in  a  week. 

Job  cards  of  completed  jobs  are  collected  from  the  depart- 
ments twice  a  day.  They  are  first  filed  in  the  pay-roll  section 
of  the  cabinet  where  they  accumulate  during  the  week.  At 
the  end  of  the  week  all  job  cards  are  collected,  whether  the 
jobs  are  finished  or  not. 

A  certain  bonus  is  given  if  a  man  does  50  per  cent  more 
than  the  standard  set  for  the  job.  Thus,  a  man  rated  at 
$11  per  week  making  50  per  cent  more  or  $16.50  per  week 
gets  48  cents  bonus,  making  a  total  of  $16.98.    The  bonus 


figure  is  derived  from  a  formula  and  curve  and  is  taken  quickly 
from  a  revolving  multiplication  table. 

Weekly  Pay  Voucher.  The  job  and  time  tickets  of  the 
Miller  Lock  Co.  are  summarized  on  a  voucher  sheet  for  each 
workman,  which  is  shown  in  an  abridged  form  below. 
The  size  of  the  sheet  is  9  by  12  in.,  and  it  contains  some  col- 
umns in  addition  to  those  here  given,  such  as  Estimated 
value  per  100,  Standard  Product,  Per  cent  of  Standard,  etc. 

In  this  factory  the  bonus  is  figured  on  the  total  weekly 
earnings  and  not  on  each  separate  job.  John  Doe  is  rated 
as  an  $11  a  week  man,  or  20  cents  per  hour  for  55  hours  per 
week.     On  jobs  S  and  9  he  was  given  this  rate  for  day  work, 


"°-  3  13        Narae  JW^Z/J^?-^            MILLER  LOCK  CO.,  Weekly  Pay  Voucher 

n                   O                                           C'ts 
Dept.     ,X           Day  Work                                                 Per                                                     Bonus      / /    f)  n                       Per 

<S                                                     K.t.       -2.C                          H„,.r                                                                       P...                                                              W..t 

yilZV  £>-£xi/(o.i^iS 

'     ' 

Job 
No. 

Lock 
No. 

Part 

Operation 

Quantity 
Units 

Rate 

Hours 
on 
Job 

Rate 
per 
Hour 

Non  Prod. 
Day  Work 

Productive 
Day  Work     Piece  Work 

Dist. 
No. 

1 

/loO 

-&cu$Jl/ 

CQ^jj-e^ 

???? 

JO 

s 

■/? 

99 

£/U 

2 

11  u 

ft 

£*MJb 

/OOO 

. '(' 

S 

.8.0 

/ 

oo 

3 

/bo 

jCds&gU 

c^A^tyyvi/ 

1O30 

.03 

a 

i: 

.aa 

6>l 

4 

IbO 

c&^t-V-wi/ 

fooo 

.OX 

7 

■2 

.2-5 

/ 

KO 

5 

im 

^OjU' 

&uJL> 

uo 

.10 

1 

.20 

OV 

6 

2Wif 

..  ^cnA-e/U 

fo '  cn*MfaAAsu>r)Jy 

'SIXd> 

■  30 

? 

» 

.SO 

a. 

<f¥ 

7 

J'JtPt 

&TrcSlS 

&*kO£> 

X? 

.ozs 

2. 

9 

.S.¥ 

*ro 

8 

^^yL^UL^D/Ylytl. 

— . — 

2,-- 

7 

/ 

.0-0 

/ 

u?. 

SS-b 

9 

'V'SU  fc-  e£         « 

Jtsyz^]shz<cJsUrn/ 



.5.0 

s 

0 

.3-0 

/ 

00 

SVO 

10 

%IU 

Ytbaj-sj 

w» 

'ZOO 

JO 

c- 

3 

.2.? 

/ 

so 

Sit 

11 

Jyet> 

Jdv-trts 

£^aJA  V-    fe^m; 

3b 

.035 

3 

r 

.3V- 

/ 

16 

12 

U 

Total 

53 

0 

tL 

^2L 

2 

9¥ 

% 

2-0 

Week 

Ending 

Job 
No. 

shortage 
Reason 

Am'Is 

Week 

1   n.imy 

Job 

No. 

Surplus 
Reason 

Am'ts 

Deductio 
For 

as 

Am'ts 

Total 
Day  Work 

Z 

Cfl/. 

Restu. 

so 

Total 
Non  Prod. 

SL 

t/5. 

Dues 

Total 
Earned 

/3 

5-to 

Cash 

Bonus 

/ 

2.2- 

Mdse. 

Total 
Wages 

14- 

W 

Scrap 

Deductions 

SO 

Surplus  Paid 
Week  Ending 

Actual 
Wages 
Reed 

m 

SH 

Dare  Paid                                             Total 

Date  Deducted                                   Total 

Total 

so 

Form  M2.    Weekly  Pay  Voucher. 


but  on  job  6  he  was  given  a  special  rate  of  30  cents  per  hour, 
possibly  because  that  was  the  regular  rate  attached  to  that 
job.  On  the  other  job  he  received  piece-work  rates,  as  in 
the  rate  column,  per  piece,  per  hundred  or  per  thousand 
according  to  the  job.  At  the  end  of  the  week  his  total 
earnings  are  figured  up  $13.56,  and  he  is  given  a  bonus  of 
$1.28,  which  is  50  per  cent  of  the  excess  of  his  earnings  above 
$11.00  a  week. 

This  method  is  much  easier  for  the  accountant  than  one 
in  which  the  bonus  is  computed  on  each  job,  and  it  may  be 
satisfactory  to  the  workman,  and  it  may  give  the  factory  a 
close  enough  approximation  to  the  labor  cost  of  the  several 
operations,  but  if  accurate  labor  costs  of  any  article  or  oper- 
ation are  desired  the  apportionment  of  the  $1.28  bonus  among 
the  eleven  jobs  is  a  matter  of  some  difficulty.  The  bonus 
$1.28  is  9.4  per  cent  of  $13.56,  the  total  weekly  earnings; 


11.5  per  cent  of  $11.14,  the  total  productive  work;    and 

15.6  per  cent  of  SS.20,  the  total  productive  piece  work  In 
figuring  the  labor  cost,  including  bonus,  on  any  job  shall  we 
add  9.4  per  cent,  11.5  per  cent,  or  15.6  per  cent  to  the  cost, 
not  including  bonus;  or,  shall  we  consider  each  job  by  itself, 
and  give  it  a  bonus  per  hour  of  50  per  cent  of  the  excess  of  the 
hourly  rate  earned,  as  in  the  rate  column  over  the  base  rate 
of  20  cents  per  hour?  Take  jobs  No.  2  and  No.  11,  for 
example.  Was  the  total  labor  cost  of  No.  2  $1.00,  with  no 
bonus,  or  $1,094,  $1,115  or  $1,156.'  With  the  same  per- 
centage additions,  No.  11,  $1.26,  not  including  bonus,  would 
cost  $1,378,  $1,405  or  $1,457,  but  figured  with  a  bonus  of 
50  per  cent  of  the  excess  of  the  hourly  rate  earned  above  20 
cents  per  hour,  the  hourly  rate  would  be  41  cents,  and  the 
cost  3.7  hoursX41  =$1,517. 

A  bonus  figured  as  a  percentage  added  to  the  total  weekly 


COST-FINDING   METHODS.     USE  OF  THE  JOB   TICKET 


59 


piece-work  earnings  does  not  give  a  satisfactory  basis  either 
fixing  piece  rates  or  for  the  estimation  of  standard  costs. 
Suppose  that  John  Doe  is  equally  skillful  and  equally  ener- 
getic and  faithful  on  both  of  the  jobs  No.  2  and  No.  11,  and 
that  he  was  fair]}''  entitled  to  earn  $15  per  week  as  an  aver- 
age. If  he  worked  a  whole  week,  55  hours,  on  job  No.  2, 
making  11,000  units  at  10  cents  per  100,  he  would  earn  20 
cents  an  hour,  or  $11.00,  and  would  get  no  bonus,  while,  if 
he  worked  another  whole  week  on  job  No.  11,  making  535 
units,  at  $.05  each,  or  55  hours  at  34  cents  an  hour,  $18.70, 
to  which  would  be  added  a  bonus  of  one-half  the  excess  over 
$11.00,  or  $3.85,  making  his  earnings  for  that  week  55  hours 
at  41  cents  an  hour  $22.55,  or  more  than  double  what  he 
received  for  the  other  week. 

The  chief  cost  accountant,  or  cost  analyzer,  on  glancing 
over  this  weekly  pay  voucher  should  make  a  memorandum 
for  his  "  Tickler  "  "  John  Doe,  Dec.  6,  1915,  earns  only  20 
cents  per  hour  drilling  214  case,  and  41  cents  per  hour  drilling 
and  reaming  S.  T.  P.  O.  door.  Why?  "  and  at  a  convenient 
time  hand  this  memorandum  and  other  similar  ones  to  a 
cost  clerk,  who  would  first  find  by  examining  other  pay 
vouchers  or  job  ticket's  for  214  case  and  S.  T.  P.  O.  Door, 
whether  the  conditions  noted  were  chronic  or  only  accidental 
and  unusual.  If  chronic,  the  rate  fixer  should  be  informed, 
and  he  would  investigate  and  report  whether  or  not  the  estab- 
lished piece  rates  for  these  two  operations  were  the  proper 
ones,  and  whether  or  not  a  time  study  with  the  aid  of  a  stop 
watch  should  be  made  in  order  to  correct  them. 

Workman's  Yearly  Record.  The  total  hours  and  earn- 
ings on  the  Weekly  Pay  Voucher  are  entered  on  a  Yearly 


Name         Jolin  Doe                                         No.  313 

Name 

D.  W.  Rate       20  Spec.  30           Bonus  Rate      11™ 

D.W.  Rate 

Sex        M.              Age    23          Nat.      A. 

Sex 

PREVIOUS  YE. 
Total  Hrs.    1914    Wages  i7S*>  Aver,  per  Hr.    25 

R'H  RECORD 
Total  Hrs. 

Aver.  perWk.13.75 

fflffl  ITOXTl     ,.,-.:,■ 

|  Dale 

«- 

P.w, 

D.W. 

B„u. 

Dedc. 

taL 

Wages 
Received 

1 

Date 

Hour. 

ts 

<■ 

55 

8.20 

6.30 

1.28 

Ml 

14.34 

2 

3 

Form  M3.    Workman's  Yearly  Record 

Record  Sheet,  as  shown  in  Form  M3.  There  are  two  sets  of 
headings  on  each  sheet,  and  54  ruled  and  numbered  lines, 
so  as  to  give  room  for  a  two-year  record  on  one  sheet.  The 
sheets  are  bound  together  in  a  loose-leaf  binder. 

Most  of  the  work  in  this  factory  is  piece  work,  and  more 
than  20,000  piece  rates  have  been  established.  They  are 
entered  on  cards  which  are  kept  in  filing  boxes.  Burden  rates 
are  apportioned  on  productive  wages — a  standard  burden. 
The  difference  between  the  monthly  total  burden  on  the 
general  books  and  the  sum  of  the  burdens  apportioned  to 
jobs  is  charged  or  credited  to  Profit  and  Loss  each  month. 
There  is  no  supplementary  rate.  Business  and  adminis- 
tration expenses  are  entirely  separate  from  shop  costs. 

There  is  no  inventory  period — a  perpetual  inventory  is  kept. 

Material  is  charged  at  standard  value  each  month,  for 


simplicity.  Apparently  the  material  is  a  small  part  of  the 
real  cost  of  the  product  (except  in  the  case  of  brass  locks) 
and  variations  in  market  price  of  material  make  only  slight 
variations  in  total  cost. 

When  the  Workman  Fails  to  Earn  His  Bonus,  Does 
the  Business  Gain  or  Lose?  Suppose  that  under  the  task 
and  bonus  system  of  paying  wages  a  workman  is  paid  40 
cents  per  piece  if  he  makes  10  pieces  in  a  day,  but  only  30 
cents  per  piece,  the  regular  piece  price,  if  he  makes  less  than 
10  pieces.  If  he  makes  10  pieces  the  labor  cost  of  a  day's 
work  is  $4,  if  he  makes  9  pieces  it  is  only  $2.70.  Suppose 
the  factory  expense  is  $4  per  man  per  day,  and  that  the 
selling  cost  is  the  same  whether  9  pieces  or  10  pieces  are  sold 
in  a  day,  and  that  the  selling  price  is  $1.50  per  piece.  We 
may  compute  the  profit  on  the  day's  work  of  the  man,  as 
follows: 


No.  of 
Pieces 

Labor 
Cost 

Fact'y 
Exp. 

Fact'y 
Cost 

Selling 
Exp. 

Total 
Cost 

Selling  Price 

Profit 

10 
9 

4.00 

2   70 

4.00 
4.00 

8.00 
6  70 

4.00 
4.00 

12.00 
10.70 

10  at  1.50  =  15  00 
9at  1.50  =  13.50 

3  00 

2.eo 

Increased  profit  when 

the  workman  earns  his  bonus 

0  20 

But  suppose  the  selling  price  is  reduced  to  81.30  per  piece, 
the  costs  remaining  as  before,  we  now  have 


No.  of  Pieces 

Total  Cost 

Selling  Price 

Profit 

'      10 
9 

12.00 

10  70 

lOat  1.30     $13.00 
9  at  1  .  30        1  1    70 

$1.00 
1    00 

Showing  equal  profits  whether  the  workman  earns  his  bonus 
or  not. 
Suppose  the  price  is  reduced  to  $1.25  per  piece,  then 


No.  of  Pieces 


Total  Cost 


10  12  00  lOat  1.25        12  50 

9  10.70  9at  1.25       11.25 

Increased  profit  when  the  workman  fails  to  earn  his  bonus 


Selling  Price 


Profit 


0.50 
0.55 


It  thus  appears  that  it  is  highly  profitable  to  a  concern  to 
pay  a  high  bonus  rate  when  the  margin  of  profit  between  the 
selling  price  and  the  total  cost  of  an  article  is  large,  but  that 
when  the  margin  of  profit  is  small  the  profits  decrease  when 
the  bonus  is  earned. 

EXAMPLES   IN   THE   USE   OF  JOB   TICKETS 

A  direct  labor  job  ticket  contains  the  following  informa- 
tion: Dept.  A,  Week  ending  Jan.  8,  1917,  Workman's  Name 
and  No. 


Milling  Connecting  Rods,  Piece  E46. 

Machine  M  13 

Credit  50  Hrs.  at  30c. 

$  1  5  00 

Move  to  M17 

Bonus  30% 

4   50 

19.50 

Ent'd  on  Pay  Roll  W  E. 

Material,  1000  lbs.  forgings 

Ent'd  on  Store  Inventory 

E46  at  4c. 

40  00 

SK. 

Burden  1000  lbs.  at  0.2  c. 

2.00 

Ent'd  on  Cost  Card  CL. 

50  hrs.  Mach.  30c. 

15.00 

Pieces  finished          19 

Job 

0   10 

17   10 

Pieces  spoiled              1 

76  60 

Ret  d  to  Stores        — 

Ret'd  to  scrap,          50  lhs. 

Job  finished  1/8.     Approved,  J.  J.,  F 

oreman. 

Cr.  for  scran         0  50 

60 


BOOKKEEPING  AND  COST  ACCOUNTING 


The  opposite  side  of  the  card  will  contain  the  time  clock         The  entry  made  from  the  job  ticket  on  the  cost  card  will 
record  and  any  remarks  that  may  be  made  by  the  foreman.       be  as  follows: 


Cost  Card 

Piece  E46 

Date 

Marlniii' 

Matl. 

Labor 

Burden 

Total 

Pea.  fin. 

Spoiled 

Cr.  for  Scrap 

Cost  per  pc. 

Remarks 
Standard  Cost 

1    8   17 

M   13 

40  00 

19.50 

17    10 

76  60 

19 

1 

0  50 

4  01 

3.83 

Additional  entries  on  this  cost  card  will  be  made  for  suc- 
ceeding operations  on  the  same  lot  of  pieces,  and  when  they 
are  finished,  the  total  cost,  less  the  credit  for  scrap,  is  added 
up  and  divided  by  the  number  of  pieces  made  to  obtain  the 
cost  per  piece.  This,  together  with  the  number  of  pieces  is 
entered  on  a  perpetual  inventory  card. 

When  the  entries  on  the  pay  roll,  inventory  and  cost  cards 
have  been  made  from  all  of  the  week's  job  tickets,  the  adding 
machine  may  be  used  to  obtain  either  directly  from  the  job 
tickets  or  from  the  cost  cards  the  following  totals. 

Machine  hours;  cost  of  labor;  cost  of  materials;  credit 
for  scrap  or  for  unused  material  returned  to  stock,  and  burden. 

The  totals  for  four  weeks  give  figures  for  the  monthly 
bookkeeping  and  statistical  entries.  The  total  machine 
hours  is  entered  on  a  card  which  shows  the  number  of  machine 
hours  for  different  months  in  comparison  with  the  estimated 
number  of  hours  run  in  a  normal  month.     This  card,  together 


with  the  monthly  total  material  and  labor  costs,  forms  an 
index  of  the  activity  of  the  business.  The  monthly  totals 
for  labor,  net  material  used,  less  scrap,  and  burden,  are  used 
for  the  monthly  Journal  entry,  Work  in  Process  Dr.  to  Labor, 
To  Stores,  To  Burden.  This  entry  may  be  subdivided  and 
apportioned  to  different  departments  or  classes  of  product  if 
desired. 

After  all  the  entries  from  the  job  tickets  have  been  made, 
as  above  described,  the  tickets  may  be  assorted  by  machine 
numbers,  and  the  number  of  hours  that  each  machine  was 
engaged  during  the  month  footed  up  on  the  adding  machine. 
The  figures  thus  formed  may  be  listed  and  compared  with  the 
number  of  hours  that  each  machine  is  estimated  to  be  engaged 
in  a  month  of  normal  business,  or  with  the  full  number  of 
working  hours  in  a  month.  The  result  expressed  as  a  per- 
centage or  "  work-factor  "  may  be  used  in  estimating  the 
"  cost  of  idleness." 


Problem  in  Cost  Finding 


Job  Ticket 

Job  Ticket 

Dept.  M.                      Machine  Work 

Back  of  Ticket 

Assembling 

Job  No.  101.          Wk.  ending  Thurs.  1-20-16 

Date 
Jan. 

Job  No.  210 
Wk.  ending 
Th.  1-27-16 

Piece  Symbol  A,          Operation  Symbol  a 
Man  No.  137              Name     A.  Smith 

Stop 

14  Kri  Start 

15  Sat.  Stop 

Start 

17  Mon.  Stop   6.0 

Start  3.0 

18  Tu.      Stop   9.2 

Start  7.0 

19  We.     Stop 

Start 

20  Th.      Stop 

Start 

Time  5.2  hours 

Pes.  A,  B,  C 
Part-  Base  A,  B,  C 

Mach.  No.  L13 

Hours                          Rate               Amt 
5.2                             .25             1.30 
Premium                        30%             39             1.69 

Burden  per  hr.       .20                                 1.04             2.73 

Material                                                                       

100  lbs.  Castings  3c                                                         3.00 

Total  inc.  Matl.                                                               5 .  73 
Pieces  delivered  20 
Pieces  finished      1 9 
Pieces  rejected   1,  scrap  val.                                                     03 

Cost  per  piece                                                                           

570-=-l9=30c,                                                               5.70 

Man  No.  107  A.  Brown 

Room  L     Bench    10 
Hrs,                 Rate      Amt 
4              30           1 .20 
Prem.  20%                   .24 

1.44 
Burden. 
4  hrs.  at  lOo                 .  40 

1    84 
Pieces  cost 
A  19            5.70 
B    38           2.40 
C    57           1.80        9  90 

II    74 
Groups  finished   19 
Av.  cost  0.62 

Clerical  Work  on  Tickets 

Planning  Room.    Make  out  tickets. 

Pay-roll  Clerk.    Enter  in  Pay  roll. 
'    Cost  Clerk.    Enter  all  costs  on  cost  ticket  for  Piece  A. 

Enter  all  costs  on  cost  ticket  for  Group  A,  B,  C. 

Add  up  all  labor  charges  entered  on  cost  tickets  for  week 
and  compare  the  total  with  pay  roll  total. 


Add  up  machine  hours  for  each  machine  (sorting  the  job 
tickets  for  this  purpose)  and  record  the  totals  in  machine 
record — as  a  basis  for  computing  the  normal  burden. 

Add  up  burden  charges  entered  on  cost  tickets  for  each 
week,  and  record  weekly  totals  in  Burden  record. 

Add  up  material  charges  on  cost  tickets  for  the  week,  and 
compare  total  with  storekeeper's  record. 


COST-FINDING   METHODS.    USE  OF  THE  JOB  TICKET 


61 


Sort  the  job  tickets  by  Piece  symbol  (or  Group  symbol  for 
assembling  tickets)  and  file  them  for  comparison  with  future 
work  on  similar  pieces. 

What  is  the  cost  of  the  clerical  work  per  100  tickets? 

How  can  this  work  be  shortened  to  cut  down  its  cost,  and 
yet  put  on  record  all  necessary  information? 

Information  Written  on  the  Job  Ticket.  (1)  Date 
issued.  (2)  Office  Order  No.  (3)  Class  Letter.  (4)  Piece 
Symbol.  (5)  Description  of  Work.  (6)  Room  No.  (7) 
Machine  No.  (8)  Workman's  No.  (9)  Workman's  Name. 
(10)  Rate,  Piece  or  Day  Work,  or  Bonus.  (11)  Man's 
Time.  (12)  Amount  of  Wages.  (13)  No.  of  Pieces.  (14) 
Order  on  Storekeeper.  (15)  Material  Delivered  by  Store- 
keeper. (16)  Cost  of  Material.  (17)  Receipt  of  Finished 
Work  by  Stores  or  Foreman.  (18)  Memo,  of  Material  or 
Scrap  returned  to  Stores.     (19)  Burden.     (20)  Total  Cost. 

(21)  Cost  per  Piece  (Material,  Direct  Labor,  Burden,  Total). 

(22)  Order  to  Move  Man.     (23)  Date  of  Finishing  Order. 
(24)  Bonus  or  Premium.     (25)  Man's  earnings  per  hour. 

The  Storekeeper's  and  Burden  Records  may  be  on 
separate  cards  if  desired.  A  list  of  standard  burdens  for 
pieces,  groups  and  assembled  structures  may  be  kept  and 
added  to  labor  and  material  costs  in  the  inventory  as  they 
may  be  needed,  as  at  the  end  of  the  year,  instead  of  entering 
the  burden  on  the  job  tickets.  The  entries  to  be  made  from 
job  tickets  include: 

1.  Workman's  Credit  on  Pay  Roll. 

2.  Such  Statistics  as  may  be  needed  by  the  Cost,  Statistics 
or  Accounting  Depts. 

If  the  cards,  after  being  entered  on  the  Pay  roll  are  sorted 
and  filed  by  Piece  Symbols  they  form  a  complete  cost  system 
for  unit  costs,  without  any  transcribing  on  books  or  cards. 
To  find  what  any  Piece  has  cost  at  different  periods  during 
the  year,  all  that  is  necessary  is  to  take  out  of  the  file  all  the 
cards  relating  to  that  piece. 

Total  monthly  costs,  by  classes,  rooms,  departments  or 
machines  may  be  found  by  sorting  the  cards  by  classes,  etc., 
and  adding  up  the  totals  on  an  adding  machine. 

If  the  machine-rate  burden  method  is  not  used  the  burden 


figures  may  be  left  off  the  cards,  and  the  burden  by  Classes, 
Rooms  or  Departments  may  be  computed  from  the  monthly 
totals  of  hours  and  of  labor  by  multiplying  the  hours  by  cents 
per  hour,  or  the  wages  by  the  burden  percentage,  determined 
from  previous  records  or  recent  investigations. 

The  storekeeper's  record  may  be  omitted  from  the  job 
tickets  if  it  is  not  desired  to  keep  detailed  costs  of  material 
for  each  piece. 

Office  Orders 

An  Office  Order  is  an  order  issued  from  the  office  to  the 
shop,  or  to  the  planning  room,  for  the  execution  of  any  kind 
of  work,  it  may  be  for  the  making  and  shipping  a  single  bolt, 
or  for  the  making  and  putting  into  the  warehouse  a  hundred 
or  a  thousand  complete  machines,  each  comprised  of  hundreds 
of  pieces.  The  shop  superintendent,  or  in  modern  practice 
the  planning  room,  plans  how  the  order  is  to  be  executed, 
and  issues  all  the  necessary  shop  orders  for  details  of  the 
work  to  be  executed,  drawings,  instruction  cards,  and  job 
tickets.  The  following  is  an  example  of  an  Office  Order  and 
of  one  of  the  job  tickets  which  is  part  of  the  history  of  ths 
execution  and  of  the  cost  accounting  related  to  it. 

Office  Order  7867.     Mar.  16,  1916 

Forge  1000  steel  bolts  1 X  6  in.  square  heads. 
Thread  500  of  them,  \\  in.  of  standard 

threads. 
Thread  100  of  them,  2  in.  special  thread,  12 

per  in. 
Machine  finish  heads  of  100  of  the  500. 
Machine  finish  all  over  100  of  the  500. 
Polish  and  nickel  plate  50  of  B  l-6m. 
When  the  order  is  finished  there  should  be  in  the  Inventory, 
400  bolt  forgings,  1 X  6  in. 
300  threaded  bolts,  standard. 
100  threaded  bolts,  special  threads. 
50  threaded  bolts,  machined  heads. 
100  threaded  bolts,  machined  all  over. 
50  threaded  bolts,  nickel-plated  heads. 
1000 


Symbol 

Bf 

1-6 

Bl-6 

B 

1-6 

sp.  12-2 

B 

1-6 

m 

B 

1-6 

ma 

B 

1-6 

mp 

Date  issued.     Mar.  16/16. 
Room  No.  Forge 

Clock  No.  317 
Work.  Forge   1000   I' 


Machine  No.  BF  4 
Name  J  Moran 
X6"  Bolts. 


Operation  Order  or  Job  Ticket 

Class  Letter  B 
Office  Order  No.  7867 
Hour  or  Piece  Rate  0.60/100 
Piece  Symbol  Bf  1-6 


In 

Out 

Hours 

Total 

No.  of  Pes. 

Total 

Amount 

M 

Storekeeper,  Deliver  for  thia 
order 

T 

1 "  Round  Steel 
1000  pes.  7%  in. 

W 

Del'd.     Date  3/16 

Th6.7 

10 

3  3 

160 

Pes.     Wt.     Price     Amt. 

F  0 

10 

10 

590 

1000  1725       1.4     24.15 

8  0 

4.2 

4  2 

17  5 

250 

1000 

6  00 

Storekeeper's  Punch  X 

Wk.  ending 

Fin. 

Rate  per 

Hour 

per  piece  60/100 

Bonus 



3/18 

=  34.3^  Matl  24.15 

$3,365  Burden  3.50 

Total  33.65 

Excess  Material  Returned  to  Store lb.  at  Scrap,  lb ...  . 


Earnings  per  hr.  600/17.5 
Cost  per  100  pieces 


Burden  Rate-Mach.    I  7  5  at  l^i 


Foreman's  Punch  O 
.*t $ 


01    >0    ^ 

o    o    o 


w 
> 
o 
s 


-c  a  a 
Sis 


°    2 


2    o    o 
a,     u>     so 

"■"         <S|         — 


Q    ^ 


•   J:     tJ 


62 


BOOKKEEPING   AND  COST  ACCOUNTING 


The  symbol?  are: 

B  Steel  bolt,  square  head,  standard  threading. 

Bf  Bolt  forging. 

1-6  1  in.  diam.  6  in.  long  below  head. 

Sp.  12-2  Special,  12  threads  per  inch,  2  in  length  of  thread. 

m  Machine-finish  heads. 

ma  Machine  finish  all  over. 

mp  Machined  and  plated  heads. 

BF4  Bolt-forging  machine,  No.  4. 

Definition  of  "  Job."  The  work  done  by  one  man,  or  by 
one  man  and  one  or  two  helpers,  on  one  kind  of  operation,  one 
machine  or  other  productive  center,  on  one  factory  order, 
which  may  be  for  one  or  for  any  number  of  pieces  and  may 
take  any  length  of  time.  If  the  time  required  runs  beyond 
the  end  of  the  week  a  new  job  ticket  is  issued. 

Other  operation  orders  for  Office  Order  No.  7S67  will  be 
issued  according  to  the  following  list: 


Piece 

No.  of 

Material 

Operation 

Mach 

Wages 

Burden 

Symbol 

Pieces 

from 

No. 

Per  hr. 

Per  hr. 

1 

B  1-6 

500 

Forge  Bf  1-6 

Cut  threads 

T  2 

.20 

.50 

2 

B  1-6  sp  12-2 

100 

Forge  Bf  1-6 

Cut  threads 

L    14 

.30 

20 

3 

B  l-6m 

100 

Shop  B  1-6 

Mach.  heads       . 
f 

M  6 

L    10 
M  6 

.25 
.25 
.25 

.30 
20 
.30 

4 

B  l-6ma 

100 

Shop  B  1-6 

Mach.  all  over  J 

L    10 
L    12 

.25 
.25 

.20 

5 

B  l-6mp 

50 

Shop  B  l-6m 

Pol.  and  Plate   j 

G.  B. 

N 

25 
2  50 

Operation    (1)    is   done   on   a   semi-automatic    threading 
machine  with  low-priced  labor. 


Operation  (2)  is  done  on  a  screw-cutting  lathe  by  a  skilled 
workman. 

Operation  (3)  requires  two  machines,  a  milling  machine 
for  the  sides  of  the  heads  and  a  lathe,  L10,  for  the  top  and 
bottom  of  the  heads.  Separate  tickets  are  made  for  the  two 
operations  if  they  are  done  by  different  men. 

Operation  (4)  requires  the  same  machines,  and  another 
lathe  may  be  used  for  turning  the  shanks. 

Operation  (5)  requires  two  machine  operations,  (a)  grinding, 
(6)  buffing  or  polishing,  both  before  and  after  the  plating, 
and  the  (c)  plating  operation,  which  includes  several  minor 
operations,  such  as  cleaning,  dipping,  wiring,  electroplating 
and  drying,  (a)  and  (6)  may  be  done  by  one  man  whose  time 
is  recorded  in  the  same  way  as  in  the  machine  shop,  but  the 
plating  bath  may  contain  portions  of  many  different  orders, 
and  it  is  difficult  to  properly  apportion  the  labor,  material 
and  burden  cost  of  each.  The  work  of  the  plating-room 
is,  therefore,  often  lumped  together  as  a  part  of  general 
factory  expense,  or  else  the  foreman 
of  the  room,  after  studies  of  costs  of 
plating  goods  of  different  sizes  and  sur- 
faces, makes  up  a  schedule  of  prices  to 
be  charged  for  plating  different  classes 
of  goods,  just  as  if  he  were  the  owner  of 
an  independent  outside  shop  doing  work 
for  different  customers.  In  this  case  the 
plating  cost  is  taken  at  5  cents  per  bolt. 
When  the  operation  on  each  Job  Ticket 
is  finished  and  the  ticket  returned  to  the 
Cost  Clerk,  he  completes  all  the  calcula- 
tions, entering  the  results  on  the  ticket, 
and  transfers  the  workman's  credit  to  the  Pay  Roll,  and  the 
important  cost  figures  to  a  Piece  Cost  Card  as  below: 


Piece  Costs  on  Order  7867.     Mar.  20,  1916 


Symbol 

Pieces 

Hours 

Rate 

Amt. 

Burc 

en  Rate 

Amt. 

Material 

Total 

Per  100  pes. 

Bf  1-6 

1000 

17  5 

34.3 

6.00 

20 

3   50 

1725X1. 4fj 

24    15 

33  6 

3  365 

B    1-6 

500 

12 

20 

.24 

.50 

60 

500X3.365 

16  83 

17  67 

3  534 

S  B    1-6  sp  12-2 

100 

9 

30 

•      2.70 

.20 

1.80 

100X3  37 

3.37 

7  87 

7  87 

it 

25 

1    00 

30 

1    20     1 

B  B    l-6m 

100 

25 

.50 

.20 

.40     / 

100X3.53 

3  53 

6.63 

6  63 

\\ 

25 

1    00 

.30 

1    20     ■. 

S  B    l-6ma 

100 

25 

.50 

.20 

40 

100X3.53 

3  53 

11.13 

II    13 

U 

I  10 

25 

2  50 

.20 

2.00     ) 

B    1-6  mp 

50 

(2 

25 

.50 

.25 

5  each 

.50    1 
2.50     / 

50X6  63 

332 

6.82 

13.64 

1850 

51.7 

14.94 

14   10 

54.73 

83.77 

Less  600  Bf  duplicated 

X3.365 

20.  J9 

Per  100 

Amount 

200  B 
50  M 

X3.534 
X6.63 

7  07 
3    31 

30  57 

30.57 

Ma 

r.  20    16 

Bf      1-6 
B       1-6 
B       1-6 

400 
300 

X$3.365 
3.534 

$13  46 
10  60 

850 

14.  10 

24   16 

53.20 

1000 

14.94 

Total  of 
order 

sp    12-2 
B       1-6  m 
B       1-6  ma 
B       1-6  mp 

100 
50 

100 
50 

7  87 
6.63 
11.13 
13  64 

7  87 
3  32 
11    13 

entered  in  the 

6  82 

From  this  sheet  the  following  figures  are  i 

1000 

53  20 

Balance  of  Stores  Bo 

ol 

;  or 

Per 

petu 

ill 

1V( 

;ntorj 

r: 

COST-FINDING   METHODS.    USE  OF  THE  JOB   TICKET 


63 


The  Inventory  should  already  have  been  credited,  from  the 
first  Job  Ticket  of  this  order,  with  the  material  issued,  1725 
pounds  at  1.4  cents,  $24.15. 

The  method  of  charging  the  inventory  only  with  the  net 
product  of  the  order,  that  is,  400  Bf,  300  B,  etc.,  should  be 
used  when  the  several  operations  follow  one  after  the  other, 
the  material  upon  which  a  second  or  other  subsequent  opera- 
tion is  to  be  performed  not  being  sent  to  the  stores  for  tem- 
porary storage,  but  kept  in  the  shop.  If,  however,  the  whole 
of  the  1000  forgings  are  sent  to  the  stores,  then  the  Inventory 
should  be  charged  with  them,  and  credited  later  when  por- 
tions of  the  lot  are  withdrawn  for  later  operations. 


Comparison  of  Burden  Rates.  In  the  above  table  of 
Piece  Costs  the  burden  has  been  assumed  to  have  been 
fixed  on  the  standard  machine-rate  basis,  the  hourly  rate 
for  each  machine  having  been  computed  from  the  sta- 
tistics of  the  previous  year.  Omitting  the  plated  bolts, 
B  i-6mp,  for  which  the  cost  price  is  fixed  in  the  plat- 
ing room,  the  man-hours  foot  up  to  49.7,  the  wages  to 
$14.44  and  the  burden  to  $11.10.  The  average  burden 
is  22.3  cents  per  man-hour,  or  76.9  per  cent  on  t  he- 
wages.  Applying  these  figures  to  the  hours  and  wages 
for  each  of  the  several  operations  we  obtain  the  follow- 
ing: 


Machine 

-hour  Burden 

Man-hour 
Burden 

Burden 
on  Wages 

Excess  Over 
Machine  Burden 

Hours 

Wages 

Rate 

%  of  Wage 

Amt. 

Hours 
X22.3 

76. 9  r\   of 
Wages 

Man-hour 
Burden 

Per  ce 
on  Wa 

Bf 

17  5 

6.00 

.20 

58 

3.50 

3  90 

4.61 

+  .40 

+  111 

B 

1.2 

.24 

.50 

250 

60 

27 

.18 

-.33 

-    .42 

Bsp. 

9 

2  70 

.20 

67 

1.80 

2  01 

2.08 

+  .21 

+    .28 

B  m 

6 

1.50 

J         4  at  .30       1 
\        2  at  .  20       / 

107 

1.60 

1   34 

1.15 

-  26 

-     45 

B  ma 

16 

4.00 

/        4  at  .30       1 
I       12  at  .20       / 

III 

3  60 

3.57 

3.08 

-.03 

-     52 

49  7 

14.44 

Av 

76  9 

11.10 

11.09 

II    II 

If  we  assume  that  the  machine-rate  burden  is  correct  then 
the  uniform  man-hour  rate  may  make  the  burden  from 
40  -I- 350,  11.4  per  cent  too  high,  to  33^-60,  55  per  cent  too 
low,  and  the  uniform  percentage  on  direct  labor  may  make 
the  burden  from  111  -=-350,  31.7  per  cent  too  high,  to  42-^60, 
70  per  cent  too  low. 

Other  systems  of  applying  burden,  such  as  that  of  adding 
the  arbitrary  figure  of  100  per  cent  to  the  direct-labor  cost, 
will  give  still  greater  variations  from  the  burden  computed 
on  the  standard  machine-hour  rate  basis,  and  systems  in 
which  it  is  attempted  to  distribute  all  the  shop  charges  for  a 
month  over  the  cost  of  product  for  a  month,  by  supplementary 
rates  or  otherwise,  will  often  lead  to  absurd  and  useless 
figures  of  burden,  such  as  1000  per  cent  or  more  of  direct- 
labor  costs. 

A  Complete  Job  Ticket  should  give  the  following  informa- 
tion: 

Office  Order  No. 

Date  issued. 

Date  work  began. 

Date  work  ended. 

Name  and  Clock  No.  of  Workman. 

Kind  of  Work. 

Room  or  Department. 

Machine. 

Class  of  Product. 

Piece  Symbol. 

Wage  or  Piece  Rate. 

Quantity  of  Material  delivered  for  the  job. 

Quantity  of  Material  and  scrap  returned. 


No.  of  pieces  made. 

No.  of  pieces  spoiled. 

Receipt  by  storekeeper  of  the  worked  material  or  symbol 
showing  where  it  has  been  moved  to  for  the  next  operation. 

Job  finished  or  not. 

When  the  Ticket  is  returned  to  the  office  the  clerk  enters 
on  it: 

Hours  worked. 

Labor  cost — Hrs.Xrate+bonus  if  any,  Amount  (or  Pieces 
Xrate),  Workman's  earnings  per  hour. 

Material,  weight,  price,  amount,  less  value  of  scrap  returned. 

Burden,  rate  and  amount. 

Total  cost  for  material,  labor  and  burden. 

Cost  per  piece  (or  per  100  pieces)  burden  and  total  per 
piece. 

Standard  cost. 

Reason  for  excess  above  standard. 

As  the  job  tickets  come  into  the  office  during  the  week,  as 
the  jobs  are  finished,  and  at  the  end  of  the  week  whether  the 
jobs  are  finished  or  not,  the  costs  are  computed,  and  the 
tickets  are  put  into  pigeonholes  corresponding  to  the  sub- 
divisions of  the  pay  roll  (departments  or  rooms)  and  arranged 
in  order  according  to  the  clock  numbers  of  the  workman. 
The  pay  rolls  are  then  made  out. 

The  footing  of  each  subdivision  may  be  entered  in  a  statis- 
tical sheet,  which  shows  the  total  labor  cost  for  the  week  in 
each  department,  the  number  of  men  working  in  it,  and  the 
total  hours  of  labor  performed  during  the  week,  the  average 
number  of  hours  per  week  per  man,  and  the  ratio  of  this 
average  to  the  total  working  hours  in  the  week. 


64 


BOOKKEEPING  AND   COST  ACCOUNTING 


The  tickets  may  then  be  sorted  in  order  to  obtain  such 
information  as  may  be  desired  for  statistical,  cost,  or  account- 
ing purposes. 

In  large  factories,  the  information  on  the  tickets  may 
be  punched  on  Hollerith  cards  (see  page  135),  and  these 
may  be  sorted  as  to  obtain  easily  any  kind  of  statistics 
desired. 

The  sortings  may  be  as  follows: 

By  Room  Numbers,  to  obtain  total  man-hours  and  total 
wages  in  each  room  (or  group  of  rooms). 


By  Machine  Numbers,  to  obtain  Machine  hours  of  each 
machine  (or  class  or  group  of  machines). 

By  Class  letter,  to  obtain  hours  and  amount  for  each 
class  of  product. 

By  Office  Order  Number,  to  obtain  total  cost  for  the  week 
of  work  done  on  each  order. 

By  Piece  Number,  to  obtain  total  labor,  material  and  bur- 
den and  the  total  cost  of  each  piece. 

The  tickets  are  finally  to  be  filed  by  piece  numbers  and 
kept  for  five  years  or  more  for  statistical  purposes. 


CHAPTER  VIII 


DISTRIBUTION  OF  BURDEN 


The  great  problem  in  cost  accounting  is  How  shall  the 
burden  be  distributed  or  "  allocated  "  to  the  cost  of  the 
various  articles  produced?  In  the  case  of  a  factory  producing 
only  one  kind  of  material  the  answer  is  easy:  The  whole  cost 
of  running  the  factory  for  a  year,  including  material,  labor 
and  burden,  divided  by  the  number  of  tons  or  yards  pro- 
duced during  the  year,  is  the  cost  per  ton  or  per  yard,  pro- 
vided the  factory  runs  the  normal  number  of  days  in  the 
year  and  provided  that  the  cost  of  extraordinary  repairs, 
the  benefit  of  which  extends  over  a  number  of  years,  is  not 
all  charged  in  the  burden  for  one  year  but  is  pro-rated  over 
the  stated  number  of  years. 

When  the  factory  is  shut  down  for  a  considerable  period 
of  time,  as  during  a  strike,  the  loss  due  to  the  continuance  of 
fixed  charges  while  no  product  is  made  should  not  be  charged 
as  burden  so  as  to  increase  the  cost  of  the  goods  produced 
while  the  factory  is  running,  but  should  be  charged  to  Profit 
and  Loss  Account. 

When  two  or  more  kinds  or  varieties  of  articles  are  pro- 
duced then  the  difficulty  of  distributing  the  burden  begins, 
and  when  the  products  are  made  in  great  variety  the  prob- 
lem becomes  so  complex  that  the  highest  skill  of  the  man- 
agement and  the  accountant  combined  are  required  to  effect 
even  an  approximate  solution. 

To  obtain  a  clear  idea  of  the  difficulty  of  the  problem  let 
us  consider  a  hypothetical  case  of  a  concern  with  $100,000 
invested  capital  and  total  expenditures  of  $200,000  per  year 
including  the  reserves  set  aside  to  cover  depreciation.  The 
first  uncertainty  the  accountant  meets  is  the  amount  to  be 
allowed  for  depreciation.  This  is  entirely  an  estimate, 
based  upon  judgment  and  experience,  and  it  is  included  in  the 
following  table : 

Yearly  Expenditures 


Burden 

F  1 

Interest  5%  on  $100,000 

$  5,000 

F  2 

Taxea,  Insurance  &  Depreciation,  10% 

10,000 

F  3 

Salaries 

15,000 

F  4 

Indirect  Labor 

15,000 

V  1 

Interest  on  Borrowed  Money 

0 

V2 

Depreciation,  Maintenance 

5,000 

V3 

Indirect  Labor 

20,000 

V4 

Fuel  and  other  supplies,  shrinkage,  etc. 

Total  Burden 

10,000 

80,000 

Total  Direct  Labor 

100,000 

Total  Material 

Total  Factory  Cost  of  Product 

20,000 

200,000 

F,  fixed  charges,  independent  of  value  of  product;  V,  charges  which  vary 
with  the  volume  of  product.  F2  coveis  obsolescence  of  plant  and  equip- 
ment, and  reserve  for  certain  unusual  risks  such  as  changes  in  fashion  of 
product;  V2  covers  depreciation  due  to  wear  and  tear  of  machinery,  and 
reserve  for  repairs  and  renewals. 


Burden  Distributed  as  a  Percentage  on  Direct  or 
Productive  Labor.  The  total  annual  burden  being  80  per 
cent  of  the  total  direct  labor  cost,  the  easiest  way  to  appor- 
tion the  burden  to  cost  of  product  is  to  add  to  the  cost  of 
material  and  direct  labor  charged  against  every  item  of 
product,  80  per  cent  of  the  direct  labor  charge  on  that  item. 
This  may  be  a  good  enough  method  for  the  needs  of  some  fac- 
tories, in  which  the  whole  product  is  fairly  uniform  in  kind 
and  size,  the  machines  used  are  nearly  of  the  same  cost,  and 
the  wage  rate  also  approximately  uniform,  but  when  these 
differ  to  any  great  extent  the  method  is  highly  inaccurate 
and  may  lead  to  absurd  and  dangerous  conclusions  in  regard 
to  the  costs  of  some  of  the  products. 

The  usual  method  of  adding  a  certain  percentage  upon  every 
article  manufactured  to  cover  all  indirect  cost  is  wrong  in  principle. 
The  indirect  cost  is  not  the  same  for  each  class  of  articles. — J.  L. 
Nicholson,  Factory  Organization  and  Costs,  p.  32. 

Man-hour  Method  of  Distribution.  If  the  $100,000 
cost  of  direct  labor  in  the  above  table  represents  400,000 
man-hours  (say  an  average  of  160  men  working  2500  hours 
per  year)  at  an  average  hourly  wage  of  25  cents,  then  the 
average  burden,  80  per  cent  of  the  direct  labor,  is  20  cents 
per  man-hour,  which  is  to  be  added  as  burden  to  the  cost  for 
material  and  for  direct  labor  of  every  article  produced. 
When  the  wage  rates  and  the  size  of  machines  throughout 
the  factory  are  variable  this  method  of  apportioning  burden 
is  much  more  accurate  than  the  percentage-on-labor  method. 

Example.  An  apprentice  at  $1  per  day  is  doing  rough 
work  on  a  large  machine.  Numerous  small  jobs  are  being 
worked  on,  requiring  much  supervision  by  the  foreman  and 
much  clerical  work  to  keep  track  of  the  orders.  At  the  same 
time  a  $4  man  is  doing  fine  work  on  a  small  tool,  the  job 
lasting  all  day,  the  amount  of  supervision  and  of  clerical 
work  being  almost  nothing.  By  the  percentage  on  direct 
labor  method  the  cost  for  labor  and  burden  (80  per  cent  on 
direct  labor)  is 


for  the  apprentice  $1  +0.S0  =  $1 .80 

for  the  skilled  workman  4+3.20=  7.20 


$9.00 


By  the  man-hour  method,  with  a  burden  of  20  cents  per 
man-hour  and  a  10-hour  day,  the  labor+burden  cost  is 


$1  + (0.20X10)  =$3.00 
4 +(0.20X10)=  6.00 


$9.00 


The  man-hour  burden  on  the  apprentice  is  200  per  cent  of 
the  direct  labor  cost,  and  that  on  the  $4  man  is  only  50  per 
cent  of  the  direct  labor  cost. 


05 


66 


BOOKKEEPING  AND   COST  ACCOUNTING 


The  man-hour  method  in  this  case  gives  a  closer  approxi- 
mation to  the  true  cost  than  the  percentage-on-labor  method, 
but  it  fails  to  take  account  of  the  fact  that  the  apprentice's 
work  should  be  charged  with  a  higher  burden  than  the  high- 
priced  man's,  because  he  is  using  a  larger  and  more  costly 
tool  and  requires  more  of  the  foreman's  time  for  his  super- 
vision. 

A  more  correct  distribution  of  the  burden  would  be,  prob- 
ably, to  charge  25  cents  per  hour  burden  on  the  apprentice's 
work  and  only  15  cents  an  hour  on  that  of  the  $4  man.  The 
labor  and  burden  cost  would  then  be 


SI +  (0.25X10)  =$3.50 
4+(0.15X10)=  5.50 


S9.00 


When  the  man-hour  method  of  apportioning  burden  is 
used,  the  charge  should  not  be  a  uniform  figure  for  all  the 
men,  but  a  burden  table  should  be  prepared  showing  a  dif- 
ferent burden  rate  for  different  classes  of  men,  of  machines, 
and  of  kinds  of  work. 

An  objection  commonly  made  to  the  use  of  the  man-hour 
instead  of  the  percentage-on-direct-labor  method  is  that  it 
involves  extra  work  on  the  part  of  the  cost  clerks.  The 
cost  of  direct  labor  has  to  be  figured  in  making  out  the  pay 
roll,  for  which  the  summing  up  of  the  man-hours  is  un- 
necessary. 

Variable  Factors  in   Manufacturing  that  Affect  the 
Burden  Charge 

Classes  of  product       A  B  C  D 

Size  Large    Medium    Small  Special  or  mixed 

Quantity  in  lot  (from  1  to  10,000). 


Pieces   in   unit   or 
item  of  product 

Operations    on     a 
piece 


(from  1  to  20). 


(from  1  to  10). 
Character  of  work      Coarse,  medium,  fine. 


Wage  system 


Department    or 
Room 


Work  standard  or 
non-standard 


Day  work,  piece  work,  task  work  and 
bonus 

L  M  N  P.  (One  or  more  machines; 
variable  as  to  size,  cost,  frequency  and 
cost  of  repairs;  number  of  machines 
handled  by  one  man;  amount  of 
supervision  required.) 

Standard  (fairly  large  order,  men  and 
machines  suitable).  Non-standard 
(small  order,  rush  order,  machine  in 
poor  condition,  underspeeded,  large 
machine  on  small  work,  man  un- 
skilled, high-priced  man  on  low-grade 
work) . 


Business  Condi- 
tions 


Normal — few  Machines  idle. 

Depressed — many  Machines  idle. 

Boom — men  working  overtime,  rush 
orders  interfering  with  regular  orders, 
delays  in  receiving  material. 


Burden  or  Overhead  Factory  Expense. 
F,  Fixed  Charges — Independent  of  Volume  of  Business. 

1.  Interest  on  Investment    in    Buildings,  Equipment, 

and  Normal  Stock  in  Trade. 

2.  Taxes,    Insurance,    Depreciation    due   to   Obsoles- 

cence. 

3.  Salaries    of    Officers,    Superintendents    and     Head 

Foremen. 

4.  Indirect    Labor — Engineer,     Firemen,     Watchmen, 

Head  Clerks,  Head  Draftsman,  Storekeeper. 
V,  Variable  Charges — Dependent  more  or  less  on  Volume  of 
Business. 

1.  Interest  on  Increased  Stock  in  Trade;  on  Borrowed 

Money. 

2.  Depreciation,  Repairs  and  Maintenance,  due  to  wear 

and  tear. 

3.  Indirect  Labor  and  tool-makers,   draftsmen,  clerks, 

cleaners,  sub-foremen;  all  wages  charged  to  expense 
accounts. 

4.  Supplies— Fuel,  Power,  Light,  Oil,  Small  Tools,  Sta- 

tionery, Postage. 

5.  Shrinkage  on  Raw  Material. 

The  cost  of  production  of  an  article  made  in  a  factory  at  a 
given  time  is  a  figure  that  can  be  determined,  not  accurately 
but  only  approximately. 

The  portion  of  the  total  cost  of  production  which  is  paid 
for  the  raw  material,  and  the  portion  which  is  paid  for  the 
labor  directly  engaged  in  the  production  of  the  article  (called 
direct  labor)  may  be  definitely  known,  but  the  portion  called 
expense,  overhead  or  burden  (which  is  often  more  than  the 
sum  of  the  costs  of  material  and  of  direct  labor)  can  only  be 
approximated. 

The  amount  of  burden  charged  on  the  books  as  part  of  the 
cost  of  an  article  will  depend  on  the  accounting  system  that 
is  used  and  on  the  ideas  of  the  accountant  or  of  the  manage- 
ment as  to  the  method  of  computing  the  burden. 

The  Department  Method  of  Distributing  Burden. 
One  of  the  methods  of  avoiding  the  objection  to  both  the 
percentage-on-labor  burden  and  the  man-hour  burden,  that 
they  take  no  account  of  the  different  conditions  under  which 
different  men  work,  such  as  size  and  cost  of  n  achines,  space 
occupied,  power  consumed,  and  cost  of  supervision,  is  to 
divide  the  factory  into  departments,  such  as  foundry,  smith 
shop,  machine  shop,  assembly  room,  finishing  and  packing 
room,  etc.,  and  to  compute  the  total  annual  burden  of  each 
department  and  distribute  it  to  the  labor  cost  by  depart- 
ments, either  as  a  percentage  on  labor  cost  or  as  a  charge  per 
man-hour. 

For  example,  we  may  repeat  the  figures  of  the  annual 
burden  given  above  (page  65)  and  divide  them  among  four 
departments  L,  M,  N,  P,  as  in  the  following  table: 


DISTRIBUTION   OF  BURDEN 


67 


Distribution  bt 

Departments 

Burden 

Total 

L 

M 

N 

P 

F  1 

Interest 

5,000 

1,000 

1,000 

2,000 

1,000 

F  2 

Taxes,  etc. 

10,000 

1,000 

1,000 

6,000 

2,000 

F  3 

Salaries 

15,000 

2,000 

3,000 

9,000 

1,000 

F4 

Indirect  Labor 

1  5.000 

3,000 

1,000 

5,000 

6,000 

V  2 

Maintenance 

5,000 

1,000 

1,000 

2.000 

1,000 

V  3 

Indirect  Labor 

20,000 

4,000 

3,000 

10,000 

3,000 

V  4 

Supplies,  etc. 
Burden 

10,000 

3,000 

2,000 

2,000 

3,000 

80,000 

15,000 

12,000 

36,000 

17,000 

Material 

20,000 

9,000 

3,000 

5,000 

3,000 

Direct  Labor 
Total  Cost  of  Product 

100,000 

26,000 

5,000 

59,000 

10.000 

200,000 

50,000 

20,000 

100,000 

30,000 

Burden,  %  of  Direct 

Labor 

80 

57  7 

240 

61   0 

170 

Man-bours 

400,000 

104,000 

20,000 

236.000 

40,000 

Burden,      cents      per 

man-hour 

20 

14.4 

60 

15  3 

42.5 

Burden  Distributed  by  Classes  of  Products.  Instead 
of  dividing  the  factory  into  departments  and  computing  the 
burden  belonging  to  each,  the  total  of  the  products  may  be 
divided  into  classes,  as  A,  B,  C,  D,  or  say  Engines,  Boilers 
Pumps,  Miscellaneous;  or  Heavy,  Medium,  Light,  and  Special 
Products.  Investigations  are  made  to  find  from  the  records 
of  the  preceding  year  what  portion  of  the  total  burden  should 
be  apportioned  to  the  several  classes,  and  the  percentage-on- 
labor  or  the  man-hour  burden  rate  for  the  current  year  or 
other  period  is  fixed  for  each  class  accordingly.  Taking  the 
example  already  given  and  distributing  the  burden  among 
four  classes  of  products  we  may  obtain  a  table  like  the  fol- 
lowing: 

Distribution  by  Classes  of  Product 


Burden 

Total 

A 

B 

C 

D 

F  1 

Interest 

5,000 

2.000 

1,000 

1,000 

1,000 

F2 

Taxes,  etc. 

10,000 

4,000 

3,000 

2,000 

1,000 

F  3 

Salaries 

15,000 

2,000 

3,000 

4,000 

6,000 

F4 

Indirect  Labor 

15,000 

3.000 

6,000 

3,000 

3,000 

V  2 

Maintenance 

5,000 

1.000 

1,000 

2,000 

1,000 

V3 

Indirect  Labor 

20,000 

6.000 

3,000 

3.000 

8,000 

V4 

Supplies,  etc. 
Total  Burden 

10,000 

2,000 

2,000 

3,000 

3,000 

80,000 

20,000 

19,000 

18,000 

23,000 

Material 

20.000 

10,000 

5.000 

4,000 

1.000 

Direct  Labor 
Total  Cost  of  Product 

100,000 

20,000 

26,000 

28,000 

26,000 

200,000 

50,000 

50,000 

50,000 

50,000 

Burden,  %  of  Direct 

Labor 

80 

100 

73.1 

64  3 

88.5 

Man-bours 

400.000 

80,000 

104,000 

112,000 

104,000 

Burden,      cents      per 

man-hour 

20 

25.0 

18.3 

16   1 

22.1 

Comparison  of  Burden  Costs  by  Different  Methods. 
Suppose  a  piece  or  a  lot  of  pieces  of  Class  A  is  made  in  Depart- 
ments L,  N,  P,  with  the  following  costs  for  direct  labor. 


Dept.  L,  10  hrs.  at  20c. 

$2.00 

N,  20  hrs.  at  15c. 

3.00 

P,  10  hrs.  at  30c. 

3.00 

40  man-hours 

$8.00 

Consider  the  burden  to  be  computed  in  different  ways: 
(1)  80  per  cent  on  direct  labor,  $6.40;  (2)  20  cents  per  man- 
hour,  $8.00. 


Departments 

L 

N 

P 

Total 

(1)  80%  on  direct  labor 

(2)  20  cents  per  man-hour 

1  60 

2  00 

2  40 
4.00 

2  40 
2.00 

6.40 

8.00 

(3)  Different  burden  in  the  three  departments. 


Per  cent  on  direct    labor 

Cents  per  man-hour 

On  direct  labor  cost: 

L,  2  00X60%  1.20 

N,  3.00X80  2.40 

P,  3  00X120  3.60 

Total  7.20 


L 

M 

60 

80 

15 

20 

N 
120 
30 


0 

n  man-hour 

basis 

10X15 

1.50 

20X20 

4.00 

10X30 

3.00 

8   50 


(4)  Suppose  there  are  four  lots,  one  each  in  Classes  A,  B, 
C,  D,  with  the  burdens  given  these  four  classes  as  above. 


A' 

•ge. 

A 

B 

C 

D 

Burden  %  of  direct  labor 

80 

100 

73    1 

64 

3 

88.5 

Cost  of  labor$8.00,  Burden 

6 

40 

8  00 

5  85 

5 

14 

7.08 

Burden,    cents   per    man- 

hour 

20 

25 

18  3 

16 

1 

22   1 

40  man-hours,  Burden 

8 

00 

10  00 

7  32 

6 

44 

8.84 

By  the  several  different  ways  of  figuring  burden  it  may 
range  in  this  case  from  $5.14  to  $10.00,  and  if  the  cost  of 
material  is  $2.00  and  labor  $8.00,  the  apparent  factory  cost 
ranges  from  $15.14  to  $20.00,  a  difference  of  $4.86,  which  is 
32  per  cent  of  the  smaller  figure. 

The  danger  of  estimating  burden  as  a  uniform  percentage 
on  the  direct  labor  cost  or  as  a  uniform  addition  per  man- 
hour,  in  a  factory  that  makes  a  variety  of  products,  is  shown 
by  these  figures. 

Distribution  of  the  Machine  Shop  Burden — The 
Machine-hour  Rate.  In  the  case  considered  we  have  taken 
the  total  factory  burden  at  $SO,000.  It  may  be  subdivided 
among  the  producing  departments  say  as  below: 


Burden 

Direct  Labor 

L     Carpenter  and  Pattern  Shop 

M     Blacksmith  Shop 

N      Foundry 

P      Machine  Shop 

Q      Grinding  and  Plating  Room 

2,600 
2,000 
8,900 
59,000 
7,500 

2,400 
11,100 

5.400 
75,100 

6,000 

80,000 

1 00,000 

As  by  far  the  largest  part  of  the  burden  is  that  of  the  machine 
shop  it  is  most  important  that  this  part  of  the  burden  be 
apportioned  to  the  product  of  the  shop  with  as  near  an  ap- 
proximation to  accuracy  as  possible. 

By  the  machine-hour-rate  of  distributing  burden  each 
machine,  work  bench,  or  other  "  productive  center "  is 
assigned  a  certain  hourly  rate  to  be  charged  during  a  whole 


ti8 


BOOKKEEPING   AND   COST  ACCOUNTING 


year,  the  amount  of  which  depends  on  the  estimated  cost  of 
keeping  it  in  the  factory  and  supplying  it  with  power,  heat, 
light  and  supervision.  This  cost  includes  interest  on  its  first 
cost  or  on  its  appraised  value,  a  charge  for  the  estimated 


annual  repairs,  probable  depreciation  due  to  wear  and  tear  and! 
obsolescence,  and  charges  for  space  occupied,  for  power,  for 
superintendence  and  for  indirect  labor,  such  as  that  of  tool- 
makers,  crane  men,  storekeeper,  clerks,  etc. 


CALCULATION  OF  THE  MACHINE  SHOP  BURDEN 


Machines 

Value 

Int.,  I 

ns..  Tax, 

Working 

Horse- 

H.P. 

Sq.  ft. 

Cost   of 

Sum 

Sum   -r 

Hourly 

Depn.  etc. 

Hours 

power 

Cost  per 

of 

Space  t 

of 

hours 

Burden 

Co) 

per  year 

each 

year  (b) 

Space  * 

(c) 

(a)  (6)  <<•) 

per  year 

Rate 

1  Boring  Mill 

S5.000 

lO'l 

=  8500 

1,000 

10 

$200 

384 

$192 

$892 

$0  89 

SI .  10 

1  Boring  Mill 

2,000 

12 

240 

2,000 

5 

200 

180 

90 

530 

.27 

0.48 

1  Planer 

1,500 

10 

150 

1,000 

10 

200 

200 

100 

450 

.45 

66 

1  Planer 

1,000 

15 

150 

1,500 

5 

150 

155 

78 

378 

25 

46 

2  Planers                                               each 

500 

15 

75 

2,000 

3 

120 

110 

55 

250 

13 

.34 

1  Shaper 

1,000 

12 

120 

2.000 

5 

200 

144 

72 

392 

20 

.41 

2  Shapere                                            each 

500 

12 

60 

2,500 

2 

100 

110 

55 

215 

09 

30 

1  Miller 

1,500 

10 

150 

1,500 

10 

300 

110 

55 

505 

34 

65 

1  Miller 

800 

12 

96 

2,000 

5 

200 

92 

46 

342 

17 

.38 

1  Miller 

600 

15 

90 

2.500 

3 

150 

74 

37 

277 

II 

32 

5  Millers                                            each 

400 

12 

48 

2,500 

2 

100 

56- 

28 

176 

07 

28 

1  Lathe 

2,000 

10 

200 

1.000 

12 

240 

272 

136 

576 

.58 

.79 

1  Lathe 

1,500 

12 

180 

2,000 

10 

400 

193 

96 

676 

.34 

.55 

1  Lathe 

1,000 

15 

150 

2,500 

5 

250 

144 

72 

472 

.19 

40 

1  Lathe 

800 

15 

120 

2,500 

3 

150 

124 

62 

332 

.13 

34 

8  Lathea                                             each 

500 

15 

75 

2,500 

2 

100 

96 

48 

223 

09 

.30 

2  Lathes                                             each 

200 

15 

30 

2.000 

1 

40 

82 

41 

III 

06 

.27 

1  Turret  Lathe 

2,000 

10 

200 

2,000 

5 

200 

112 

56 

456 

23 

.44 

1  Turret  Lathe 

1,000 

12 

120 

2.500 

3 

150 

82 

41 

311 

.12 

.33 

4  Turret  Lathes                                each 

800 

12 

96 

2,500 

2 

100 

68 

34 

230 

.09 

.30 

1  Screw  Mach. 

1,500 

15 

225 

2,000 

5 

200 

96 

48 

473 

.24 

.45 

1  Screw  Mach. 

1,000 

15 

150 

2,000 

2 

80 

82 

41 

271 

14 

.35 

1  Drill 

1,200 

10 

120 

1,500 

5 

150 

47 

24 

294 

.20 

.41 

1  Drill 

800 

10 

80 

1,500 

2 

60 

40 

20 

160 

II 

.32 

2  Drills                                                   each 

400 

12 

48 

2,000 

1 

40 

26 

13 

101 

.05 

.26 

5  Drills                                               each 

100 

12 

12 

2,500 

1 

50 

20 

10 

72 

.03 

.24 

1  Press 

1,500 

10 

150 

1,000 

3 

60 

124 

62 

272 

27 

48 

1  Press 

1,000 

10 

100 

1,500 

2 

60 

92 

46 

206 

.14 

.35 

5  Presses                                            each 

500 

12 

60 

2,000 

1 

40 

45 

22 

122 

06 

.27 

1  Keyseater 

300 

10 

30 

100 

48 

24 

54 

54 

.75 

1  Screw  Press 

200 

10 

20 

100 

48 

24 

44 

.44 

.65 

1  Cutting-off  Mach. 

200 

10 

20 

1,000 

2 

40 

80 

40 

100 

.10 

.31 

1  Centering  Mach. 

200 

10 

20 

1.000 

1 

20 

80 

40 

80 

08 

.29 

30  small  Mach's  Av. 

100 

10 

10 

2,500 

0  5 

25 

40 

20 

55 

.02 

.23 

30  Benches  and  Fittings 

30 

10 

3 

2,000 

40 

20 

23 

.01 

.22 

Sum  for  one  of  each  kind 

33,630 

3898 

62,700 

12) 

4375 

3696 

1848 

10,121 

Add  for  duplicates 

14,970 

1883 

132,300 

60 

2785 

4004 

2002 

6,670 

8,600 

5781 

195,000 

185 

7160 

7700 

3850 

16,791 

*  Floor  space  occupied  by  machine,  including  passage  ways  and  space  for  operator  and  for  material. 
t  Coat  of  space,  including  rent,  heat,  light  and  cleaning,  estimated  at  50  cents  per  square  foot  per  year. 


Figuring  these  several  charges  by  the  year  the  total  for 
each  machine  is  divided  by  the  number  of  hours  which  the 
machine  may  be  expected  to  run  in  a  normal  business  year, 
which  may  be  judged  from  statistics  of  previous  years. 

A  list  of  the  machines  with  their  several  ckarges  is  made  out 
like  the  one  shown  in  the  above  table. 

The  sum  of  the  three  annual  costs  (a),  (6),  (c),  and  the 
corresponding  hourly  rate  for  some  of  the  machines,  may 
appear  extravagantly  high,  such  as  the  hourly  rate  for  the 
large  boring  mill,  89  cents;  the  large  lathe,  58  cents;  the  small 
keyseater,  54  cents;  and  the  screw  press,  44  cents;  but  these 
high  figures  are  due  to  the  small  number  of  hours  that  the 
machines  are  supposed  to  be  used  in  a  year.  In  making 
estimates  of  costs  for  the  purpose  of  bidding  on  contracts 
these  high  figures  may,  in  the  discretion  of  the  management, 


be  reduced  arbitrarily,  so  that  the  actual  working  hours  of 
the  machines  may  possibly  be  increased  and  the  cost  of 
idleness  thus  be  decreased. 

After  obtaining  the  sum  of  the  charges  (a),  (6),  (c),  to  be 
made  against  each  machine,  and  the  hourly  rate,  due  to  these 
charges,  the  next  thing  to  be  considered  is  what  additional 
hourly  charge  shall  be  made  to  them  in  order  to  distribute 
properly  the  annual  cost  for  salaries  and  for  so  much  of  the 
indirect  labor  as  has  not  already  been  included  in  the  costs 
(6)  and  (c)  for  power,  heat,  light,  and  cleaning. 

Subtracting  $16,791,  which  the  table  shows  to  be  the  sum 
of  the  charges  against  the  several  machines  for  interest, 
depreciation,  etc.,  and  for  power  furnished  and  space  occu- 
pied, from  the  total  machine  shop  burden  of  §59,000,  we  have 
$42,209  which  remains  to  be  distributed  over  the  product  in 


DISTRIBUTION   OF  BURDEN 


69 


some  way.  We  may  apportion  it  as  a  percentage  on  the 
direct  labor,  by  dividing  it  by  $75,100,  the  total  cost  of 
machine  shop  direct  labor;  $42,209+75,100=56.3  per  cent, 
which  is  to  be  added  to  the  direct  labor  cost  of  every  job  in 
addition  to  the  hourly  machine  charge  in  the  table  (sum  of 
(a),  (6),  (c),  charges  divided  by  estimated  hours  that  the 
machine  runs  in  a  year),  but  that  method  is  the  most  inac- 
curate of  all  methods  for  a  shop  in  which  the  value  of  the 
tools  and  the  rates  of  wages  are  not  fairly  uniform.  A  much 
better  method  is  to  divide  it  by  the  total  number  of  estimated 
man-hours,  obtaining  say  SO  men,  2500  hours  per  year, 
§42,209+200,000=21  cents  per  hour,  which  is  to  be  added 
to  the  rate  already  found  for  each  machine,  giving  the  figures 
in  the  last  column  of  the  table  as  the  total  machine  rate 
burden  for  each  machine. 

Production  orders  which  benefit  by  certain  machines  should  be 
charged  a  rental  rate  for  the  use  of  the  machine,  based  on  the 
length  of  time  the  machine  is  employed.  The  rate  of  charge  for 
each  individual  machine  is  based  on  the  costs  of  installing,  main- 
taining and  operating  it.  It  should  not  be  the  aim  purposely 
to  allow  the  machine  to  make  a  so-called  profit,  but  merely  to 
furnish  the  service  of  the  machine  at  actual  cost,  and  that  cost 
should  include  interest  on  the  investment  in  the  machine  and 
motor  (if  motor-driven),  rental  for  the  space  it  occupies,  a  reserve 
for  repairs,  a  reserve  for  depreciation  and  obsolescence,  a  charge 
for  power  and  for  the  service  of  the  man  or  men  who  operate  it, 
together  with  a  burden  for  crane  service  and  diffused  costs. — 
F.  E.  Webner,  Industrial  Engineering,  April,  1909. 

Modifications  of  the  Machine  Rate  Burden.  Suppose 
that  the  total  residual  burden  after  deducting  the  (a),  (6), 
(c)  charges,  842,209,  is  subdivided  as  follows: 

(1)  Superintendent,  Asst.  Supt.,  Purchas- 

ing Agent,  Bookkeepers,  Order 
Clerks,  Stenographers,  Office 
Supplies S18,000 

(2)  Planning    Room,     Time    and    Cost 

Clerks,      Storekeepers,      Foremen, 

Gang  Bosses,  Errand  Boys 10,000 

(3)  Tool-makers,      Tool-setters,     Repair 

men,  Draftsman,  Transportation, 
Watchmen,  Cleaners,  Yard  Men . . .      14,209 

842,209 

All  of  this  sum,  which  amounts  to  56  per  cent  of  the  direct 
labor  or  21  cents  per  man-hour,  has  to  be  charged  to  the  cost 
of  product.  It  is  evident  that  neither  the  percentage-on- 
direct-labor  method,  nor  the  man-hour  method  of  appor- 
tionment takes  account  of  the  fact  that  some  operations 
require  a  great  deal  more  of  the  time  of  the  overseers,  clerks 
and  other  indirect  labor  than  do  other  operations  that  require 
the  same  number  of  man-hours  and  the  same  expenditure 
for  direct  labor,  and  that  the  proper  amount  chargeable  from 
each  of  the  three  subdivisions,  (a),  (b),  (c),  of  the  above 
table  to  different  jobs  is  by  no  means  proportional  to  the 
totals  of  each  of  tne  subdivisions. 

For  example,  a  man  may  be  engaged  a  whole  week  on  turn- 
ing flywheel  rims  or  doing  other  steady  work  on  the  large 
boring  mill,  requiring  practically  none  of  the  time  of  the 


superintendent,  foreman,  storekeeper,  planning  room  or  tool- 
setters,  and  the  same  may  be  true  of  some  of  the  work  done 
on  the  large  planer  and  the  large  milling  machine,  while  a 
man  may  do  twenty  different  jobs  in  a  week  on  one  of  the 
small  lathes  or  other  machines,  requiring  a  great  deal  of 
indirect  labor  of  all  kinds  for  his  assistance.  Instead  of  21 
cents  per  man-hour  being  the  proper  charge  to  be  added  to 
the  (a),  (6),  (c),  burden  for  each  machine  or  bench,  it  may  be 
fairer  to  add  only  5  cents  for  the  large  boring  machine  and 
30  cents  for  the  small  machines.  One  good  way  of  adjusting 
the  burden  rates  so  as  to  obtain  a  reasonable  approach  to 
accuracy  is  to  have  the  annual  burden  schedule  revised  by  a 
conference  of  the  superintendent,  foremen  and  heads  of  the 
planning  and  cost  departments,  modifying  the  uniform  indi- 
rect labor  burden  rate  of  21  cents  per  man-hour,  lowering 
the  rates  on  some  machines  and  raising  it  on  others,  in  such  a 
way  as  to  leave  the  total  annual  amount  (in  this  case  $42,209) 
the  same. 

The  Job  Burden  Rate.  Another  method  which  is  prob- 
ably even  better  than  the  one  above  described,  is  to  examine 
the  table  of  the  subdivisions  (1),  (2),  (3),  of  the  total  indirect 
burden  $42,209,  and  the  detailed  table  of  salaries  and  other 
costs  from  which  this  total  and  its  subdivisions  are  made  up, 
and  consider  which  of  the  costs  should  be  applied  to  the 
product  in  proportion  to  the  man-hours  of  direct  labor,  and 
which  to  the  number  of  jobs  done  in  a  week  or  other  given 
time.  For  example,  it  may  be  found  that  the  total  of  sub- 
division (2)  ($10,000),  is  related  almost  entirely  to  the 
number  of  jobs,  a  small  job  lasting  an  hour  requiring  as  Iarg„- 
a  share  of  this  $10,000  as  a  large  job  lasting  a  whole  week. 
From  statistics  of  preceding  years  it  may  be  found  how  many 
separate  job  tickets  may  be  expected  to  be  issued  in  a  normal 
business  year,  say  in  the  case  considered,  50,000,  and  this 
divided  into  what  may  be  considered  the  part  of  the  annual 
burden  that  is  proportional  to  the  number  of  jobs,  or  $10,000, 
gives  20  cents  per  job,  which  may  be  printed  once  for  all  on 
the  blank  job-cost  tickets  to  save  the  trouble  of  writing  it. 
When  this  is  done  the  addition  to  the  machine-hour  rate  is 
decreased  accordingly  from  21  cents  an  hour,  or  whatever 
figure  may  have  been  fixed  as  the  proper  burden  for  the  sev- 
eral machines,  to  (42,209-10,000) +200,000  =  16  cents  or 
by  10,000-200,000=5  cents  per  man-hour. 

For  example,  suppose  that  two  men  are  each  using  the  same 
kind  of  machine,  which  has  a  regular  burden  rate  of  32  cents 
an  hour,  but  one  man  works  50  hours  on  one  job  while  the 
other  works  50  hours  on  20  different  jobs,  or  2\  hours  on  each, 
the  first  man's  ticket,  on  the  regular  burden  rate,  would  read 


Direct  Labor  50  hrs.X30c.  =815.00 
Burden  50hrs.X32c.  =   16.00 


$31.00 


The  second  would  have  for  each  job: 

Direct  Labor  2^x30    $0.75 

Burden  2|  X32         .SO 


$1.55 
Twenty  jobs,  twenty  tickets,   $31 .  00 


70 


BOOKKEEPING   AND   COST  ACCOUNTING 


By  the  modified  method,  using  a  job  charge  of  20  cents  per 

job,  the  first  ticket  would  be 

Direct  Labor  50X30  =$15.00 
Mach.  burden  50  X  27  =  13 .  50 
Job  burden  . 20 


50X30  =  115.00 
Mach.  burden  50X27=   13.50 

Twenty  jobs  at  20c  4.00       17.50 


$32.50 


$2S.70 


The  sum  of  the  twenty  tickets  of  the  second  man  would  be 


Showing  a  difference  of  $3.80,  which  seems  only  fair  when 
we  consider  that  the  20  jobs  require  a  great  deal  more  of 
indirect  labor  than  the  single  long  job. 


Burden  Table 

Cents  per   Hour 


15 

20 

25 

30 

35       40 

45 

50 

60 

70 

80 

90 

Hours 

1 

Burden  Charge 

1 

.15 

.20 

.25 

30 

.35 

.40 

.45 

.50 

60 

.70 

.80 

.90 

2 

.30 

.40 

.50 

.60 

.70 

.80 

.90 

1  00 

1  20 

1.40 

1  60 

1.80 

.45 

.60 

.75 

.90 

1  05 

1.20 

1  35 

1.50 

1  80 

2  10 

2.40 

2.70 

4 

.60 

80 

1  00 

1  20 

1  .40 

1  60 

1  80 

2.00 

2.40 

2  80 

3  20 

3.60 

5 

.75 

1  00 

1.25 

1.50 

1  75 

2.00 

2  25 

2  50 

3  00 

3.50 

4.00 

4.50 

6 

.90 

1  20 

1  50 

1.80 

2  10 

2.40 

2  70 

3.00 

3.60 

4  20 

4.80 

5.40 

7 

1.05 

1.40 

1  75 

2.10 

2.45 

2.80 

3  15 

3.50 

4.20 

4.90 

5.60 

6.30 

8 

1  20 

1.60 

2.00 

2.40 

2.80 

3.20 

3.60 

4.00 

4.80 

5.60 

6.40 

7.20 

9 

1  35 

1  80 

2  25 

2  70 

3.15 

3.60 

4.05 

4.50 

5  40 

6.30 

7  20 

8.10 

10 

1.50 

2  00 

2  50 

3  00 

3  50 

4.00 

4.50 

5.00 

6  00 

7  00 

8  00 

9.00 

20 

3.00 

4.00 

5.00 

6  00 

7.00 

8.00 

9.00 

10.00 

12.00 

14.00 

16.00 

18  00 

30 

4.50 

6.00 

7.50 

9.00 

10  50 

12.00 

13.50 

15  00 

18  00 

21  00 

24  00 

27  00 

40 

6.00 

8.00 

10  00 

12.00 

14.00 

16.00 

18  00 

20  00 

24  00 

28  00 

32  00 

36.00 

50 

7.50 

10.00 

12.50 

15.00 

17.50 

20  00 

22  50 

25  00 

30  00 

35  00 

40.00 

45.00 

60 

9.00 

12  00 

15.00 

18  00 

21  00 

24.00 

27.00 

30  00 

36  00 

42.00 

48  00 

54.00 

70 

10  50 

14  00 

17.50 

21  00 

24.50 

28  00 

31.50 

35  00 

42  00 

49  00 

56.00 

63.00 

80 

12  00 

16  00 

20  00 

24.00 

28  00 

32.00 

36  00 

40.00 

48  00 

56  00 

64  00 

72  00 

90 

13.50 

18  00 

22.50 

27  00 

31.50 

36  00 

40  50 

45.00 

54.00 

63  00 

72.00 

81.00 

For  the  purpose  of  facilitating  computations  of  burden  it  is 
customary  in  some  shops  to  express  all  machine-hour  rates  in 
even  multiples  of  5  cents;  thus,  a  22  cent  rate  would  be 
changed  to  20  cents  and  a  23-cent  rate  to  25  cents.  The  error 
in  making  these  changes  is  negligible,  for  it  is  far  less  than 
probable  error  in  the  estimates  for  depreciation,  hours  run 
per  year,  horsepower,  rental  value  of  space  occupied,  and 
indirect  labor,  upon  which  the  machine  rate  is  based.  A  mul- 
tiplication table  such  as  is  shown  above  may  be  used  to  facil- 
itate computations. 

Distribution  of  Burden  in  Minor  Departments 
Blacksmith  Shop  (10  men). 

Equipment: 

1   Furnace 
1    Hammer 
1   Hammer 
4  Anvils  &  Tools 
Forges  &  Fittings 


Direct  Labor: 

4  Blacksmiths 
4  Helpers 
1   Hammerman 
1    Hammerman 


Interest,  Depreciation  lb.  12% 

Fuel 

Steam  for  Hammers 

Iron  &  Miscellaneous  Supplies 


$300 

500 

40 

600 


1500 
Share  of  Superintendent,  storekeeper,  clerical  work,  etc.        500 


Av.  Time  50  wks.  XS222 
Indirect  labor  in  the  shop,  none 

Expense  burden  for  superintendence,  etc. 


S2000 
$11,100 

2,000 

$13,100 


$400 

1000 

500 

400 

700 

3000 

Each  per  week 

$24 

$96 

15 

60 

36 

36 

30 

30 

The  work  done  in  the  Blacksmith  Shop  may  all  be  done  on 
job  tickets,  either  for  salable  goods,  for  expense  supplies  for 
the  shop,  or  for  repairs.  There  is  no  indirect  labor  charge, 
every  man  in  the  shop  being  a  workman.  The  burden  charge, 
$2000  per  year,  may  be  conveniently  charged  to  the  jobs  at 
8  cents  per  man-hour,  10  men,  2500  hours  =25.00  man-hours, 
divided  into  $2000=8  cents. 

Carpenter,  Pattern,  and  Paint  Shop  (5  men). 

Equipment: 

I   Planer 
1   Jig  Saw 

1  Jig  Saw 

2  Drills 
Sundry  Tools 


10 


$222 


$1500 


DISTRIBUTION   OF  BURDEN 


71 


1  Carpenter 
1  Patternmaker 
3  Helpers 
15  each 


Lumber  &  other  Supplies 

Interest,  Depreciation,  etc., 
Power,  Light,  Heat 
Miscellaneous   Burden 


Per  week 
(21 

24 


15% 


45 

—  Per  year 

90X50  =  $4500 
500 
$5000 

$225 

100 
175 


If  the  estimate  by  separate  classss  is  correct,  then  the 
indirect  labor  cost  figured  as  a  uniform  percentage  of  direct 
labor  may  be  from  (10.00  —  10.11)  -=-16=37  per  cent  too  low  to 
(11.55  —8)  -=-S  =44  per  cent  too  high,  and  the  cost  figured  as  a 
uniform  charge  per  hour  of  direct-labor  may  be  from  (16.00  — 
11.70)  +16  =27  per  cent  too  low  to  (11.70-8) -=-8=46  per 
cent  too  high. 

If  we  figure  the  indirect  labor  cost  on  the  basis  of  the  ton- 
nage the  following  figures  will  result. 


Direct  Labor 

Labor  Charged  to  General  Factory  Burden 

Burden  of  the  Shop 


Part  of  the  work  of  this  shop  will  be  charged  as  direct 
labor  on  job  tickets.  On  such  work  a  burden  charge  of  10 
cents  per  man-hour  will  amply  cover  the  shop  expenses  prop- 
erly chargeable  to  this  work.  The  rest  of  the  work  will  be 
done  for  factory  betterments,  general  repairs,  etc.,  on  general 
and  special  orders,  and  will  carry  a  burden  charge  sufficient 
to  wipe  out  the  remainder  of  the  shop  expenses  at  the  end  of 
the  year,  if  it  is  a  year  of  normal  business. 

Foundry.  Making  Castings  for  four  Classes  of  Product 
A,  B,  C,  D. 

The  charge  for  pig  iron  and  scrap  can  be  made  by  adding 
to  the  weight  of  the  finished  product  the  proper  percentage 
for  loss  in  melting.  The  charge  for  fuel  can  also  be  esti- 
mated from  the  weight  of  the  finished  product.  The  cost  of 
direct  labor  is  obtained  from  the  job  tickets  of  the  molders 
and  coremakers. 

The  wages  of  the  melter  and  of  his  helper  and  the  cost  for 
power  may  be  apportioned  to  tonnage,  and  charged  at  a 
certain  price  per  ton  of  product  to  the  several  jobs,  the  price 
varying  with  the  class  of  product. 

The  cost  for  interest,  for  depreciation  of  equipment,  for 
sand  and  other  supplies,  for  crane  service,  and  for  all  other 
items  of  general  expense,  including  foreman's  wages  and  other 
indirect  labor  that  cannot  directly  be  allocated  to  the  several 
jobs  must  be  apportioned  to  them  on  some  equitable  basis. 

Suppose  we  have  a  foundry  making  10  tons  of  castings  per 
week,  divided  into  four  classes,  A,  4  tons;  B,  3  tons;  C,  2  tons; 
D,  1  ton  (tons  of  2000  pounds).  The  pay  roll  is  S186  per  week, 
of  which  $108  is  direct  labor  of  molders  and  coremakers, 
charged  to  jobs,  and  $78  is  indirect  (foreman,  melter  and 
laborers).  A  careful  estimate  by  the  foreman  divides  the 
labor  among  the  four  classes  as  follows: 


$500 
$2400 

A 

B 

c 

D 

Total 

2100 

500 

$5000 

Product  per  week,  lbs. 
Indirect  labor  cost 
Indirect  labor,  cents  per  lb. 

8000 
8.00 

0   1 

6000 
24  00 

0  4 

4000 

30  00 

0  75 

2000 
16  00 
0  8 

20,000 

$78  00 

0  39 

A 

B 

C 

D 

Total 

Labor,    Direct 

16 

38 

40 

14 

108 

Indirect 

8 

24 

30 

16 

78 

Labor,  Total 

24 

62 

70 

30 

186 

Indirect  %  of  Direct 

50 

63.2 

75 

114  3 

72.2 

Man-hours,  Direct 

60 

140 

140 

60 

400  at  0.27  = 

$108 

Indirect      cost,      at 

19.  5ri  per  hour  of 

direct  labor 

11.70 

27.30 

27.30 

11    70 

400  at  19.5  = 

78 

At  72.2  %  of  direct 

wages 

11.55 

27.45 

28  89 

10.  11 

78.00 

By  estimate,  as 

above 

8  00 

24  00 

30  00 

16  00 

78  00 

The  indirect  labor  cost  of  one  class  of  castings  is  8  times 
that  of  another,  showing  that  an  attempt  to  estimate  the 
indirect  labor  cost  at  a  uniform  figure,  such  as  j  cent  per  lb., 
will  lead  to  very  erroneous  results. 

Suppose  the  cost  of  fuel,  of  power,  and  of  repairs  of  cupola 
foots  up  to  $60  per  week,  and  the  cost  for  interest  and  depre- 
ciation of  plant  and  the  cost  for  minor  supplies  together 
amount  to  $40  per  week,  the  first  may  be  divided  in  propor- 
tion to  the  tonnage  and  the  second  according  to  the  direct 
man-hours,  and  we  obtain  the  total  burden  as  below: 


A 

B 

C 

D 

Total 

Fuel,  etc. 

24 

18 

12 

6 

$60 

Interest,  etc. 

6 

14 

14 

6 

40 

Indirect  Labor 

8 

24 

30 

16 

78 

Total  Burden 

38 

56 

56 

28 

178 

Burden  per  man-hour 

$0,633 

0   40 

0.40 

0  467 

0.445 

Burden  per  cent  of  direct  wages 

237 

147 

140 

200 

165 

Burden,  cents  per  pound 

0.475 

0  933 

1.40 

1  .40 

0.89 

It  is  advisable  to  divide  the  cost -accounting  of  the  foundry 
into  two  parts,  (1)  cost  per  pound  of  melted  metal  in  the 
ladles;  (2)  all  other  costs,  by  classes,  per  pound  of  finished 
product.  (1)  includes  the  raw  material,  fuel  for  the  cupola, 
ladle  and  cupola  repairs,  power  for  blast  and  other  purposes, 
and  all  labor  and  burden  that  belong  to  the  cost  of  melted 
metal,  while  (2)  includes  fuel  for  the  core  ovens,  sand  and 
other  supplies,  and  all  labor  and  burden  involved  in  turning 
the  melted  metal  into  finished  product. 

Polishing  and  Plating  Rooms  (10  men).  In  the  grinding 
and  polishing  room  as  each  piece  is  handled  separately  all  the 
labor  can  be  entered  on  job  tickets  as  direct  labor.  In  the 
plating  room,  since  the  goods  are  commonly  handled  in  mass, 
pieces  belonging  to  many  different  orders  often  being  in  the 
bath  at  the  same  time,  all  the  labor  may  be  considered  as 
indirect  labor,  not  directly  chargeable  to  definite  jobs.  The 
plating  room  supplies  also  are  used  in  mass,  and  their  cost  is 
an  indirect  expense,  apportionable  to  the  jobs  either  on  the 
basis  of  an  estimate  by  the  boss  plater,  or  as  a  result  of  an 
investigation  of  the  cost  of  large  lots  of  pieces  of  the  same  or 
similar  size  and  shape.  By  such  investigation  a  schedule  may 
be  made  giving  the  amount  that  should  be  charged  for  plating 
per  piece  or  per  100  pieces  of  different  kinds  of  goods. 


72 


BOOKKEEPING  AND  COST  ACCOUNTING 


Grinding  Room. 

Equipment: 

Cost  $2000 

Interest,  Depreciation,  etc.,  20% 

Annual  Cost  of  Wheels,  Repairs  and  Supplies 

Cost  of  Power,  Heat,  Light,  etc. 


Share  of  factory  cost  for  superintendence  and  indirect 
labor 


Direct  Labor: 

6  Grinders  and  Polishers,  40^  per  hr.,  2500  hrs. 

Total  Annual  Cost 

Plating  Room. 

Equipment: 

Cost   $2000 

Supplies,  and  ail  expense  except  labor 

I  Plater 

I  Helper 

I  Cleaner 

Other  labor 


$400 
600 
200 

$1200 

300 

$1500 

$6000 

$7500 


Total  Annual  Cost 


$2500 
900 
600 
500 
1500 

$6000 


The  Grinding-room  Burden  may  be  charged  as  25  per  cent 
of  the  direct  labor  cost,  or  at  10  cents  per  man-hour,  in  both 
cases  making  the  total  S1500  in  a  normal  year. 

The  total  cost  of  the  plating  room,  S6000  per  year,  is  all 
indirect,  and  it  is  to  be  distributed  to  the  goods  plated  accord- 
ing to  estimate  or  schedule  of  prices. 

Example  of  Figuring  Burden  on  Jobs  or  Three  Machines. 
Suppose  three  machines,  a  large  boring  mill,  a  large  planer, 
and  a  small  lathe,  are  each  operated  50  hours  in  a  week,  and 
that  three  men  are  available  as  operators,  whose  wages  are 
respectively  20,  30  and  40  cents  per  hour.  Assume  that  in 
different  weeks  the  three  men  each  are  changed  around  so 
that  each  man  has  a  week  on  each  machine.  Assume  also 
that  the  work  of  a  machine  for  a  whole  week  may  be  on  one 
job  or  on  twenty  different  jobs,  requiring  twenty  job  tickets. 
Four  methods  of  apportioning  burden  are  considered,  viz.: 
(1)  80  per  cent  on  direct  labor  cost;  (2)  24  cents  per  man- 
hour,  (3)  machine-hour-rate,  SI. 10,  S0.66  and  S0.23  for  the 
three  machines,  respectively.  (4)  Machine-hour  rate  SI. 05, 
0.61  and  0.18  with  a  job  charge  of  20  cents  per  job.  It  is 
required  to  compute  the  burden  by  each  system. 


Wages  per  hour 
Wages  for  50  hours 
I  Burden  (1)  80%  on  direct  labor 
Burden  (2)  24  C  per  man-hour 


40  i 

$20.00 

16  00 

12  00 


Burdens  (1)  and  (2)  are  independent  of  the  machine  rates. 
Burdens  (3)  and  (4)  are  independent  of  the  hourly  rate  of 
wages. 


Boring 

Planer 

Lathe 

Mill 

Burden  (3)  50  hours  X  rate  = 

$55  00 

$33.00 

$11.50 

Burden  (4)  50  hours  X  modified  rate  + 

20  cent  job  charge: 

a.  single  job 

52.50 

30  50 

9.00 

b.  20  jobs 

56.50 

34  50 

13  00 

From  the  above  figures  it  will  be  seen  that,  according  to 
the  method  of  computing  burden,  the  product  of  the  lathe 
for  a  given  time  may  be  charged  a  burden  ranging  from  88 
to  $13.00,  that  of  the  planer  from  SS  to  $34.50,  and  that  of 
the  boring  mill  from  S8  to  $56.50.  Of  course,  it  is  not  likely 
that  any  manufacturer  would  charge  for  the  rent,  power, 
repairs  and  superintendence  of  a  large  boring  mill  or  planer 
as  low  a  figure  as  $8  or  even  $16  per  week,  but  the  figures 
show  what  large  possibilities  of  error  there  are  in  adherence 
to  old-fashioned  methods  of  estimating  burden. 

Departmental  and  Class-of-Product  Burdens.  Having 
made  a  table  of  hourly  burden  rates  for  each  machine  in  the 
shop,  it  is  possible  to  avoid  the  vast  amount  of  labor  required, 
in  a  large  shop  making  a  great  variety  of  small  products,  of 
entering  the  burden  on  each  job  ticket.  The  method  of 
doing  this  is  to  divide  the  total  product  into  classes,  according 
to  its  kind,  weight,  finish  or  other  feature  by  which  it  may 
most  easily  be  distinguished,  giving  them  symbols,  as  Class 
A,  B,  C,  D,  E,  and  to  divide  the  whole  factory  into  depart- 
ments, either  by  rooms  or  by  groups  of  rooms  or  parts  of 
rooms,  classifying  them  by  the  kind  of  work  done  in  them, 
or  the  size  or  kind  of  tools  used  in  them,  symbolizing  them  as 
VH,  H,  M.  L,  VL,  meaning  very  heavy,  heavy,  light,  very 
light,  or  in  any  other  suitable  way.  Taking  the  list  of  tools 
in  the  machine  shop  we  may  group  them  in  five  departments, 
thus : 


VH 

H 

M 

L 

VL 

No.  of  Tools 

Average    hourly    burden, 
(d)  cents 

7 
55 

1  1 
40 

27 
25 

44 
15 

30 
12 

These  (rf)  rates  are  those  corresponding  to  the  sum  of  the 
(a),  (6),  (c),  columns  of  the  table  on  page  68.  To  them  are 
to  be  added  the  residual  burden  for  salaries  and  indirect  labor 
that  may  be  apportioned  not  to  the  departments  or  to  the 
classes  of  machines,  but  to  the  classes  of  the  product.  We 
may  then  construct  a  department-and-class  burden  table, 
something  like  the  following,  the  small  letters  representing 
figures  that  have  to  be  computed  or  estimated. 


Department.  . 

VH 

II 

M 

L 

VL 

Class  of 

Hourly  Burden 

Product 

A 

a 

b 

c 

d 

e 

B 

f 

g 

h 

i 

J 

C 

k 

1 

m 

n 

o 

D 

P 

q 

r 

s 

t 

E 

u 

V 

w 

X 

y 

In  all  that  has  preceded  we  have  assumed  that  the  burden, 
whether  figured  as  a  percentage  on  direct  labor,  as  a  charge 
per  man-hour  or  per  machine-hour  or  a  departmental  or  a 
class  burden,  or  a  combination  of  them,  is  a  "  normal  "  or 
"  standard  "  burden,  that  remains  fixed  for  a  year  or  more, 
independent  of  changes  of  amount  of  sales  from  month  to 


DISTRIBUTION   OF  BURDEN 


73 


month  or  of  stoppages  of  any  part  of  the  works  due  to  acci- 
dents, strikes,  etc.  The  burdens  are  added  to  the  charges  for 
material  and  for  direct  labor  to  obtain  what  may  be  called 
the  "  inventory  cost  "  of  the  goods  produced,  their  value  in 
the  warehouse,  from  which  profits  of  the  business  may  be 
computed,  and  which  may  be  used  as  a  basis  of  minimum 
selling  prices. 

Example.     Suppose  $100,000  direct  labor  is  divided  among 
classes  and  departments  as  follows: 


Dept. 


M 


Total 


Thousands  of  Dollars 

Class  A 

6 

1 

10 

3 

20 

B 

4 

1 

17 

4 

26 

C 

1 

1 

24 

2 

28 

D 

15 

2 

8 

1 

26 

26 

5 

59 

10 

100 

If  this  labor  represents  400,000  hours  an  average  of  25c. 
per  hour,  and  the  burden  was  calculated  on  the  old  method 
of  a  uniform  (say  SO  per  cent)  percentage  in  direct  labor  cost, 
the  burden  would  be,  in  thousands  of  dollars,  by  classes  and 
departments. 


Dept 

L 

M 

N 

P 

Total 

Class  A 

4.8 

0  8 

8  0 

2.4 

16 

B 

3.2 

0.8 

13.6 

3.2 

20.8 

C 

0  8 

0.8 

19.2 

1    6 

22  .4 

D 

12  0 

1    6 

6  4 

0  8 

20  8 

20.8 

4  0 

47.2 

8  0 

80. 

If  the  burden  was  calculated  on  the  man-hour  system  and 
it  was  assumed  that  all  the  labor  was  paid  a  uniform  rate  of 
25  cents  an  hour,  the  same  burden  for  each  class  and  depart- 
ment would  be  found,  but  suppose  that  the  average  wage  in 
the  several  departments  was  different,  say  20,  25,  29.5  and 
20  cents,  respectively,  in  the  several  departments,  and  the 
total  wages  divided  as  follows: 


P«ot 

L 

M 

N 

P 

Total 

Hours 

At.  Wages,  cents 

Wages,  Thous. 

130.000 
20 
26 

20,000 

25 

5 

200,000 

29  5 

59 

50,000 
20 
10 

400,000 
25 
100 

and  the  burden  was  taken  at  20  cents  per  man-hour,  the  total 
burden  for  the  four  departments  would  be 


L 

M 

N 

P 

Total 

Id  thousands  of 

dollars 
Instead  of 

26 
20.8 

4 
4 

40 
47.2 

10 
8 

80 
80 

The  hours  and  wages  in  the  departments  and  classes  would 
be  as  follows  (in  thousands) : 


I. 

:\ 

N 

P 

Class 

Hours 
at  .20 

Hours 
at  .25 

Hours 
at  29  5 

Hours 
at  .20 

Total 

Hours 

A 
B 
C 
D 

30 

20 

5 

75 

$6 

4 

1 

15 

4 
4 
4 
8 

$1 
1 
1 
2 

33  9 
57.63 
81.35 
27   12 

$10 

17 

24 

8 

15 

20 

10 

5 

$3 
4 
2 
1 

82.9 
101   63 
100  35 
115   12 

$20 
26 
28 
26 

130 

26 

20 

5 

200.00 

59 

50 

10 

400.00 

100 

and  the  burdens,  calculated  respectively  at  20  cents  per  man- 
hour,  in  thousands  of  dollars. 


Class                         Dept. 

L 

M 

N 

P 

Total 

A 
B 
C 
D 

6 

4 

1 

15 

26 

100 

0  8 
0.8 
0  8 

16 

6  78 
11    526 
16.270 

5.424 

3 

4 
2 

1 

16.58 
20  326 

20  070 
23.024 

Equivalent  to  per  cent  on 
direct,  labor 

4  0 
80 

40  000 
67  8 

10 
125 

80  000 

eo 

This  method  is  better  than  the  percentage  of  direct  labor 
method  in  that  it  takes  account  of  the  difference  in  average 
wages  in  different  departments,  but  it  is  still  unsatisfactory 
in  that  it  fails  to  take  account  of  the  fact  that  the  cost  of 
superintendence,  repairs,  and  indirect  labor  generally,  for 
each  job  in  any  department  is  not  directly  proportional  to 
either  the  hours  of  direct  labor  or  to  the  wages  paid  for  direct 
labor.  For  example,  two  men  may  be  working  for  the  same 
wages  on  machines  of  the  same  kind  and  cost,  but  one  is 
doing  repetitive  work,  requiring  scarcely  any  attention  from 
tool-setters,  foremen  or  indirect  labor  of  any  kind,  while  the 
other  is  doing  a  great  variety  of  work,  requiring  much  service 
from  the  foreman,  time-setters,  order  and  cost  clerks,  store- 
keepers, etc.  It  is  evident  that  a  much  higher  burden  should 
be  charged  in  the  latter  case  than  in  the  former.  It  is  evident 
that  the  burden  charge,  whether  a  man-hour  rate  or  a  per- 
centage on  direct-labor  cost  should  vary  both  with  the 
department  and  with  the  class  of  product. 

Example.  Let  the  total  direct  labor  in  a  normal  year  be 
$100,000  subdivided  by  departments  and  classes  as  in  the 
preceding  example,  and  let  the  total  burden,  as  before,  be 
$S0,000.  It  is  found  by  study  of  the  statistics  of  the  pre- 
ceding years  that  $20,000  of  this  burden  is  what  we  have 
before  called  the  (a),  (6),  (c)  burden  of  machines,  consisting 
on  interest,  taxes,  insurance,  depreciation,  and  maintenance, 
power,  light,  and  cost  of  space  occupied,  and  that  $60,000  is 
the  total  cost  for  superintendence  and  other  indirect  labor, 
and  for  other  general  expenses,  such  as  supplies. 

Taking  the  direct  labor  at  400,000  man-hours  per  year, 
$20,000  is  equivalent  to  an  average  (a),  (6),  (c)  burden  of 
5  cents  per  man-hour,  but  subdividing  it  into  departments  it 
may  be  apportioned  as  follows: 


74 


BOOKKEEPING  AND   COST  ACCOUNTING 


Departments 

L 

M 

N 

P 

Total 

Direct    Labor,  thousand 

hours 
(a),  (o),  (c)  Burden 
Cents  per  man  hour 

130 
$4000 
3 

20 

3000 

15 

200 
10,000 
5 

50 

3000 

6 

400 

20,000 
5 

Departments 

L 

M 

N 

P 

Class  A 

30 

50 

20 

25 

B 

20 

40 

15 

20 

C 

15 

30 

10 

15 

D 

10 

20 

5 

10 

A  careful  estimate  by  the  cost  department  to  apportion  the 
residual  S60.000  to  the  several  classes  and  departments  gives 
the  following  approximate  figures,  cents  per  man-hour. 


Adding  these  figures  to  those  already  found  for  the  (a),  (6), 
(c)  burden  and  taking  the  subdivisions  of  the  direct  labor 
costs  as  before,  we  find  the  total  burden  charges  as  below. 


Standard  Burden   Rates  and  Charges  bt   Departments  and  Classes 


Dept. 

L 

M 

N 

P 

Class 

Thousand 
Hours 

Rate 

Amount 

Thousand 
Hours 

Rate 

Amount 

Thousand 
Hours 

Rate 

Amount 

Thousand 
Hours 

Rate 

Amount 

Total 

A 
B 
C 
D 

30 

20 

5 

75 

0  33 
.23 
.18 
.13 

$9,900 

4,600 

900 

9,750 

4 
4 
4 
8 

0  65 
.55 
.45 
.35 

$2600 
2200 
1800 
2800 

34 
58 
81 
27 

0  25 
.20 
.  15 
.10 

$8,500 
11,600 
12,150 
2,700 

15 

20 

10 

5 

0  31 
.26 
21 
.16 

$4,650 

5,200 

2,100 

800 

$25,650 
23,600 
16,950 
16.050 

130 

$25,150 

20 

$9400 

200 

$34,950 

50 

$12,750 

$82,250 

The  total  $82,250  is  sufficiently  close  to  the  $80,000  total      thousands 
estimated  burden.     Comparing  the  amounts  of  burden,  in      have: 


of   dollars,   obtained  by  the  three  methods   we 


Total  Burdens,  Thousands  of 

Dollars 

Dept. 

L 

M 

N 

P 

Class 

(1) 

(2) 

(3) 

(1) 

(2) 

(3) 

(1) 

(2) 

(3) 

(1) 

(2) 

(3) 

A 

4  8 

6 

9  9 

0.8 

0  8 

2.6 

8  0 

6  8 

8  5 

2  4 

3 

4.6 

B 

3.2 

4 

4  6 

0  8 

0  8 

2  2 

13  6 

115 

II. 6 

3.2 

4 

5.2 

C 

0  8 

1 

0  9 

0  8 

0  8 

IB 

19.2 

16  3 

12  2 

1.6 

2 

2   1 

D 

12  0 

15 

9  8 

16 

1.6 

2  8 

6  4 

5.4 

2.7 

0  8 

1 

0.8 

20  8 

26 

25  2 

4.0 

4  0 

9  4 

47.2 

40.0 

35  0 

8  0 

10 

12.7 

Per  cent  of  direct  labor 

80 

100 

97 

80 

80 

188 

80 

67.8 

59.3 

80 

100 

127 

Adding  these  burden  figures  to  the  figures  for  direct  labor 
in   the  first  table,  we  obtain  for  the  total  labor  and  burden 


cost  by  the  three  methods  of  computing  burden,  the  following, 

in  thousands  of  dollars: 


Total  L 

ABOR    AND 

Burden  C 

DSTS 

Dept. 

L 

M 

N 

"  P 

Class 

(1) 

(2) 

(3) 

(1) 

(2) 

(3) 

(1) 

(2) 

(3) 

(1) 

(2) 

(3) 

A 

10.8 

12 

15  9 

18 

18 

3  6 

18 

16  8 

18  5 

5.4 

6 

7  6 

B 

7  2 

8 

8  6 

1.8 

1.8 

3.2 

30.6 

28.5 

28.6 

7  2 

8 

9.2 

C 

1.8 

2 

1.9 

18 

1.8 

2  8 

43  2 

40.3 

36.8 

3  6 

4 

4.1 

D 

27 

30 

24.8 

3.6 

3  6 

4.8 

14  4 

13.4 

10.7 

1.8 

2 

18 

(1)  Percentage    on    direct-labor    method    of    computing      year  in    computing   standard   or   inventory    costs.     They 


burden. 

(2)  Man-hour  rate;  uniform. 

(3)  Machine-hour  or  man-hour  rate,  modified  by  depart- 
ment estimates. 

The  modified  burden  rates   considered  in  this   example 
are  standard  man-hour  rates  to  be  used  throughout  the 


may  be  converted  into  percentage  on  direct-labor  rates 
by  dividing  the  burden  figures  in  dollars,  given  in  the 
table,  by  the  several  direct-labor  charges.  The  following 
table  gives  the  percentage-on-direct-labor  rates  for  the 
several  classes  in  comparison  with  the  corresponding  man- 
hour-rates. 


DISTRIBUTION   OF   BURDEN 


75 


Dept. 

I, 

M 

N 

P 

Man- 

Per 

Man- 

Per 

Man- 

Per 

Man- 

Per 

Class 

hour 

cent 

hour 

cent 

hour 

cent 

hour 

cent 

rate 

rate 

rate 

rate 

rate 

rate    | 

rate 

rate 

A 

0.33 

165 

0.65 

260 

0.25 

85 

0.31 

153 

B 

.23 

115 

.55 

220 

.20 

68 

.26 

130 

C 

.18 

90 

.45 

180 

.15 

51 

.21 

105 

D 

.13 

65 

.35 

140 

.10 

34 

.16 

80 

The  man-hour  rates  will,  in  general,  be  much  more  accurate 
than  the  percentage  rates  unless  the  wage  rate  throughout 
a  given  department  is  nearly  uniform.  The  only  excuse  for 
using  the  percentage  rates  is  that  they  involve  less  clerical 
labor  than  the  man-hour  rates. 

The  above-described  method  of  computing  standard  burden 
rates  by  classes  and  departments  is,  of  course,  not  as  accurate 
for  a  machine  shop  doing  a  great  variety  of  work  with  dif- 
ferent kinds  of  tools,  as  the  standard  machine-hour-rate, 
modified,  as  described  on  page  69,  by  consideration  of  the 
conditions  under  which  the  several  machines  run  and  also  by 
the  device  of  adding  a  job  charge  on  each  job  ticket. 

The  question  whether  to  use  the  most  accurate  cost  system, 
in  whole  or  in  part,  or  some  other  system  which  may  be  less 
accurate  but  requiring  less  clerical  work,  must  be  determined 
for  each  business  separately,  with  reference  to  the  use  that  is 
to  be  made  of  the  system,  the  degree  of  accuracy  that  the 
business  needs,  and  the  cost  of  operating  the  cost  system 
itself. 

The  Use  that  is  Made  of  the  Normal  Burden  Figures. 
Recapitulating  the  different  methods  of  calculating  and 
apportioning  burden,  we  have 

(1)  Percentage  on  Direct  Labor,  (A)  uniform,  (B)  by 
departments,  (C)  by  classes,  (D)  by  departments  and  classes 
combined. 

(2)  Charge,  cents  per  man-hour.  (A)  uniform,  (B)  by 
departments,  (C)  by  classes,  (D)  by  departments  and  classes 
combined. 

(3)  Machine-hour  rate — Hourly  charge  for  each  machine, 
dependent  on  the  machine  and  on  the  conditions  of  its  opera- 
tion. 

(4)  Machine-hour  rate  with  job  charge  added. 

(5)  Either  of  the  above  with  material  burden  charge  added. 
A  short  example  is  here  given  to  show  the  application  of 

these  several  methods.  Three  men,  Smith,  Brown  and  Jones, 
each  working  10  hours  in  one  day  in  a  certain  factory  under 
the  following  conditions: 


Smith 

Brown 

Jones 

Wages  per  hour,  cents 

Machine  No. 

No.  of  jobs  in  a  day 

Class  of  Product 

Department 

20 
1 
1 

A 
L 

30 
2 
1 

B 

N 

40 
3 
10 
C 
P 

Bui  den  Methods: 

(1)  a — 100%  on  direct  labor  cost 
6— L,  80;  B,  100;  P  120%. 
c— A,  120;  B,  100;  C,  80. 
d— AL,  90;  BN,  100;  CP,  90. 


(2)  a — 30  cents  per  man-hour. 
6— L,  25;   N,  30;   P,  35  cent. 
c — A,  35;  B,  30;  C,  25  cents. 
d— AL,  40;   BN,  30;  CP,  20  cents. 

Math.  Hr.  Rati. — No.  1,  40;    No.  2,  30;    No.  3,  20  cents. 
Mach.  Hr.  Rate— No.  1,  35;   No.  2,  25;   No.  3,  15  cents. 
Job  charge  added  per  job,  10  cents. 

Bt-rden  Charges  for   10   Hoi  Re 


(3) 

(4) 


Method 

Smith 

Brown 

Jones 

(1)    a 

2.00 

3.00 

4  00 

b 

1    60 

3.00 

4.80 

c 

2  40 

3.00 

3.20 

d 

1.80 

3.00 

3  60 

(2)  a 

3.00 

3  00 

3  00 

b 

2.50 

3.00 

3  50 

c 

3.50 

3  00 

2  50 

d 

4.00 

3.00 

2  00 

(3) 

4.00 

3.00 

2  00 

(4) 

3  60 

2.60 

2  50 

Wages  per  10  hrs. 

$2.00 

$3.00 

$4  00 

Smith's  burden  ranges  from  SO  per  cent  to  200  per  cent  of 
his  wages,  and  Jones's  from  50  per  cent  to  120  per  cent  accord- 
ing to  the  method  of  burden  charge  used. 

It  appears  from  the  above  table  that  the  burden  on  Brown's 
10  hours  is  the  same  no  matter  what  burden  method  is  used 
(except  No.  4  in  which  there  is  a  job  charge),  but  this  happens 
only  because  the  rates  of  burden  were  so  chosen  that  the 
average  burden  by  either  method  was  equal  to  the  average 
wage. 

Suppose  that  the  cost  of  material  in  each  case  was  $1.00, 
the  total  cost  would  range  as  follows: 


Smith 

Brown 

Jones 

Labor 

Burden 

Material 

$2  00 

$1  .60  to  4.00 

$1.00 

$3  00 

$2  60  to  3  00 

$1   00 

$4  00 

$2.00  to  4  80 

$1.00 

$4  60  to  7  00 

$6  60  to  7  00 

$7.00  to  9.80 

. 


If  the  smallest  burden  is  the  most  accurate  in  each  case 
then  if  the  highest  burden  is  used  the  total  cost  in  Smith's 
case  is  overestimated  $2.40  or  50.2  per  cent;  Brown's  $0.40  or 
6  per  cent,  and  in  Jones's  $2.80  or  40  per  cent. 

The  burden  computed  by  either  of  the  four  methods 
illustrated  above  may  be  modified  by  adding  to  it  a  charge 
for  burden  on  material.  The  cost  of  material  delivered  to 
the  tools  in  a  shop  includes  not  only  its  purchase  price  but 
also  the  cost  for  freight,  drayage,  handling  in  stores,  insur- 
ance, interest  on  the  cost  while  stored,  crane  or  truck 
service,  and  for  shrinkage,  breakage,  spoilage  or  other  dete- 
rioration in  value.  These  extra  costs  will  vary  with  dif- 
ferent kinds  of  material.  They  may  be  added  as  "  material 
burden  "  on  the  job  tickets,  but  usually  it  will  be  found 
better  to  have  the  storekeeper  add  them  on  his  perpetual 
inventory  cards  or  on  his  stores  issue  tickets  when  charg- 
ing the  shop  for  material  delivered  from  the  stores. 


76 


BOOKKEEPING  AND   COST  ACCOUNTING 


In  an  actual  factory  the  question  of  which  method  of  cal- 
culating and  apportioning  the  burden  should  be  used  can  be 
properly  determined  only  after  a  careful  consideration  of  the 
nature  of  the  business  and  an  examination  of  the  statistics 
of  a  normal  year  or  the  average  for  several  years,  together 
with  an  estimate  of  the  amount  of  clerical  labor  required  for 
each  method.  The  machine-hour  method  is  not  so  formid- 
able as  it  may  appear,  for  the  listing  of  the  machines,  of  the 
space  they  occupy  and  of  the  charge  for  interest,  depreciation, 
power,  etc.,  need  be  made  only  once  for  all,  with  revisions 
once  a  year. 

The  application  of  the  machine-hour  rate  to  the  job  tickets 
in  many  lines  of  business  need  not  be  made  on  all  the  tickets 
throughout  the  year,  if  the  clerical  labor  of  doing  it  is  con- 
sidered excessive,  but  only  on  jobs  of  each  particular  kind  or 
class  once  or  twice  a  year  if  the  conditions  of  such  jobs  are 
approximately  uniform. 

When  burden  is  calculated  as  a  percentage  on  the  cost  of 
direct  labor,  and  the  product  is  of  a  varied  kind,  made  on 
different  machines  and  involving  expenses  for  rent,  interest, 
depreciation,  power,  etc.,  which  have  no  uniform  relation 
to  direct  labor  costs,  the  recorded,  or  bookkeeper's,  costs  are 
useless,  false  and  misleading. 

Suppose  two  products  A  and  B  are  made  in  a  factory  each 
costing  S500  for  material,  81000  for  direct  labor;  by  the  per- 
centage or  labor  method  of  computing  burden,  the  burden  on 
each  is  $1000,  but  by  the  more  accurate  machine-hour  rate 
method  the  burden  on  A  is  $500  and  that  on  B  $1500.  Sup- 
pose the  selling  expense  on  each  is  $500,  and  that  each  product 
is  sold  for  $3300.     The  accounts  then  show  the  following: 


Average  or 
percentage 
Burden 

Burden  on  Machine- 
hour  method 

A  or  B 

A 

B 

Material 
Direct  Labor 
Burden 

$  500 
1000 
1000 

$  500 
1000 
500 

$  500 
1000 
1500 

Total  Factory  Coat 
Selling  Expense 

2500 
500 

2000 
500 

3000 
500 

Min.  or  no  profit  selling  price 
Sold  for 

3000 
3300 

2500 
3300 

3500 
3300 

Profit     300 

Profit     800 

Loss        200 

If,  at  the  taking  of  the  inventory  A  has  been  sold,  while  B 
remains  unsold,  the  books  will  show,  if  the  burden  is  figured 
on  the  percentage  on  labor  method,  Profit  on  A  $300;  inven- 
tory value  of  B  $2500;  but  if  the  burden  is  figured  on  the 
machine-hour  rate  method  the  profit  on  A  will  Lie  shown  to 
be  $800  and  the  inventory  value  of  B  $3500,  so  that  the  per- 
centage of  labor  method  causes  an  underestimate  of  both 
the  profit  and  the  inventory  value. 

On  the  other  hand,  if  B  is  sold  and  A  remains  unsold,  the 
books  show,  on  the  percentage  method,  profit  on  B  $300; 
inventory  value  of  A  $2500;  but  on  the  other  method,  loss  on 
B  $200,  inventory  value  of  A  $2000.     In  this  case  the  per- 


centage of  labor  method  causes  an  overestimate  of  both 
the  profit  and  the  inventory  value. 

If  the  selling  prices  of  these  products  is  fixed  at  10  per  cent 
in  advance  on  the  sum  of  the  factory  cost  and  the  selling 
expense,  the  prices  of  both  A  and  B,  by  the  percentage  on  labor 
method  will  be  83300,  but  by  the  more  correct  methods  the 
price  of  A  will  be  $2750  and  that  of  B  $3800.  By  the  per- 
centage on  labor  method  A  will  be  overpriced  $550  and  B 
underpriced  $550. 

Keeping  Labor  and  Material  Cost  only  without  Appor- 
tioning the  Burden.  In  large  factories  making  products 
in  hundreds  or  thousands  of  varieties  it  is  found  that  the  cost 
of  the  vast  amount  of  bookkeeping  and  clerical  work  involved 
in  keeping  an  account  of  the  cost,  detailed,  including  burden 
of  every  article  and  every  operation,  is  far  greater  than  is 
warranted  by  the  benefits  derived  from  the  cost-keeping 
system.  In  such  cases  the  "  factory  costs  "  or  inventory 
values  of  finished  goods  delivered  to  the  warehouse  are 
commonly  determined  by  "  estimates,"  made  from  frequent 
investigations  during  limited  periods,  of  the  material  and 
labor  costs  of  certain  representative  parts  of  the  product, 
and  additions  for  burden  are  made  from  an  examination  of 
such  statistics  as  are  available.  Such  estimates  are  apt  to 
be  grossly  inaccurate,  and  great  care  must  be  taken  not  to 
make  them  too  high,  thus  inflating  inventory  values,  or  too 
low,  leading  to  the  fixing  of  non-remunerative  selling  prices. 

Classification  of  Total  Expenditures  by  Percentages. 
Henry  R.  Towne  (Trans.  A.  S.  M.  E.  vol.  34,  1912),  gives  the 
following  table,  relating  to  four  distinct  lines  of  actual  product, 
in  which  the  several  elements  have  been  reduced  to  terms  of 
the  actual  cost  of  the  product  when  finished  and  sold. 


No.  1 

No.  2 

No.  3 

No.  4 

L         Productive  Labor 
M       Productive  Material 

28 
38 

17 
33 

29 
25 

19 
27 

PC     Prime  Cost 

ME    Manufacturing  Expense 

66 

24 

50 
20 

54 
28 

56 

22 

SC      Shop  Cost 

CE     Commercial  Expenses 

90 
10 

70 
30 

82 
18 

78 
22 

AC     Actual  Cost 

100 

100 

100 

100 

Another  way  of  showing  the  relative  percentages  of  the 
several  elements  of  cost  is  to  reduce  them  to  percentages  of 
the  shop  cost,  which  is  taken  as  100. 


No.  1 

No.  2 

No.  3 

No.  4 

L 
M 

31 

42 

24 
47 

35 
30 

24 
48 

PC 
ME 

73 

27 

71 
29 

65 
35 

72 
28 

SC 

CE 

100 
II 

100 
43 

100 
22 

100 
28 

AC 

III 

143 

122 

128 

DISTRIBUTION   OF   BURDEN 


If  there  is  any  need  of  expressing  the  elements  of  cost  in 
the  form  of  percentages  of  some  total,  the  second  method  seems 
to  be  the  better  one.  The  term  "  actual  cost  "  is  not  prop- 
erly descriptive;  it  should  read  "  total  cost  to  make  and 
sell."  When  goods  are  in  the  warehouse,  charged  at  factory 
cost,  the  cost  of  selling  is  an  indeterminate  quantity  until 
after  they  are  sold,  and  it  will  vary  with  every  sale.  It  is 
doubtful  if  any  method  of  expressing  costs  as  percentages  is 
of  any  practical  value.  The  fact  that  the  ratio  of  PC  to 
ME  is  as  73  to  27  for  one  article  and  as  65  to  35  for  another 
is  of  no  particular  significance.  Nor  is  the  fact  that  the 
ratio  of  ME  to  L  is  as  27  to  31  in  one  case  and  as  29  to  24  in 
another.  What  is  needed  in  cost-keeping  is  the  amounts  of 
the  several  elements  and  the  totals,  not  percentages. 

The  Ratio  of  "Non-Productive"  to  "Productive"  Labor.* 

With  the  growth  of  competition  within  the  last  twenty  years 
the  necessity  for  some  knowledge  of  costs  became  evident,  and 
the  manufacturer  turned  to  the  accountant  for  a  system  of  finding 
costs.  The  cost  accountant  promptly  gave  him  what  he  called 
the  ratio  of  "non-productive"  to  "productive"  labor,  which  he 
said  should  be  low  for  good  management.  By  "non-productive" 
labor  he  meant  salaries  of  all  kinds,  and  all  other  labor  that  could 
not  be  charged  directly  to  an  order,  including  miscellaneous 
labor  such  as  watchmen,  sweepers,  truckmen,  etc.  By  "pro- 
ductive" labor  was  meant  simply  that  labor  which  could  be 
charged  directly  to  an  order. 

While  the  ratio  of  operating  expense  to  total  income  may  be  a 
fair  measure  of  efficiency  in  a  transportation  company,  the  ratio 
of  "non-productive"  to  "productive"  labor  is  not  only  not  a 
fair  measure  of  the  efficiency  of  operation  in  a  manufacturing 
plant,  but  is  often  exactly  the  reverse. 

To  my  mind  the  widespread  use  of  this  ratio  as  a  measure  of 
efficiency  has  been  more  effective  in  producing  inefficiency  than 
any  other  single  factor,  except  the  oft-repeated  statement  that 
you  must  have  low  wages  if  you  would  have  low  costs.  Until 
these  two  fallacies  are  absolutely  discredited,  we  cannot  expect  a 
solution  of  our  most  serious  troubles. 

In  a  factory  where  this  ratio  was  used  as  a  guide  the  following 
incident  occurred:  A  foreman  had  ten  men  on  a  job,  which  he 
said  could  be  done  by  eight  if  he  could  have  a  boy  to  supply 
them  with  work.  He  said,  however,  that  if  he  made  the  change, 
the  boy's  wages  would  be  called  "non-productive"  labor  and  his 
ratio  would  go  up,  with  the  result  that  he  would  be  criticised,  so 
he  did  not  make  it. 

In  the  U.  S.  Navy  an  energetic  officer  studied  the  loading  of 
ammunition  and  very  much  reduced  the  direct  labor  employed, 
but,  being  unable  to  reduce  the  indirect  labor  in  the  same  propor- 
tion, the  above  ratio  went  up.  He  came  in  for  very  severe  crit- 
icism, notwithstanding  the  fact  that  his  total  labor  had  been 
decidedly  reduced. 

A  PROBLEM   IN  BURDEN   CHARGING 

Suppose  a  plant  has  two  machines  of  the  same  kind  but 
different  sizes,  No.  1  and  No.  2.  The  total  monthly  burden 
(one-twelfth  of  the  yearly  burden)  of  No.  1  is  $24,  and  of  No.  2, 
$36,  or  respectively  10  and  15  cents  an  hour  for  full  time,  240 
hours  per  month.  But  the  average  or  normal  running  time 
during  a  year  is  160  hours  or  two-thirds  time  for  No.  1,  and 
120  hours  or  half  time  for  No.  2.  The  normal  hourly  burden 
charge  credited  to  the  two  machines  and  charged  to  the  cost  of 
product  is  therefore  10X240-^160  =  15  cents  for  No.  1  and 

♦Extracts  from  a  paper  on  "Measuring  Efficiency"  by  H.  L. 
Gantt.     Trans.  A.  S.  M.  E.,  1914. 


15x240-^120=30  cents  for  No.  2.  Suppose  that  in  a 
normal  month  each  machine  has  only  one  job,  costing  as  fol- 
lows, the  cost  including  the  normal  burden  charge  and  labor 
at  20  cents  an  hour. 


Labor 

Burden 

Total 

Mach.  No.  I,  Job.  No.l, 

160  Hrs. 
Mach.  N'o   2,  Job  No.  2, 

120  Hrs. 

$32.00 
24.00 

$24  00 
36.00 

$56.00  or  20  +  15  =350  per  hour 
60  00  or  20+30=500  per  hour 

Job  No.  1  can  be  done  on  either  machine,  Job  No.  2  only 
on  No.  2  machine.  In  a  certain  month  Job  No.  3,  80  hours, 
comes  in,  and  it  can  be  done  on  either  machine,  costing  as 
follows,  if  the  normal  burden  is  charged: 


Job  No.  3,  Mach.  No.  I,  80  hrs. 
Job  No.  3,  Mach.  No.  2,  80  hr.s. 


Labor 


$16  00 
16.00 


Burden 


$12  00 
24.00 


Total 


$28.00 
40.00 


Making  an  apparent  saving  of  $12  by  doing  the  job  on 
No.  1  machine.  But  the  saving  is  only  apparent,  for  the 
burden  on  No.  2  machine  runs  on  (except  the  slight  difference 
on  the  cost  of  the  fuel  burned  in  the  power  plant  when  the 
machine  is  running  or  idle)  whether  the  machine  runs  or  not. 

Suppose  that  Job  No.  1  is  a  regular  job,  taking  about  the 
same  time  every  month,  and  that  jobs  Nos.  2  and  3  are  irreg- 
ular, varying  from  0  to  120  hours  each  in  different  months, 
and  in  some  months  both  No.  1  and  No.  2  machines  may  be 
run  part  time  on  both  of  these  jobs.  Now  the  problem  is 
what  I  iiirden  shall  w:e  charge  to  the  cost  of  the  several  jobs 
under  these  different  conditions  as  to  the  number  of  hours 
each  machine  runs  in  a  month.  In  a  busy  month,  when  No.  1 
machine  runs  full  time  what  shall  be  its  hourly  burden,  and 
in  a  dull  month,  when  No.  2  machine  runs  only  g  of  full  time 
or  ^  of  its  normal  time  what  shall  be  the  hourly  burden  charge 
for  the  use  of  that  machine?  If  No.  2  machine  is  idle  all  the 
month,  shall  the  loss  due  to  its  idleness  be  made  up  by  charging 
an  extra  or  "  supplementary  "  burden  on  the  work  done  on 
No.  1  Machine? 

Those  writers  and  accountants  who  hold  that  "  the  cost  of 
manufactured  products  made  during  a  certain  period  equals 
the  total  expenditure  of  the  business  for  the  same  period," 
wTould  answer  these  questions  by  saying  that  the  total  burden 
of  these  two  machines  for  a  month,  $24  for  No.  1  and  $36  for 
No.  2  must  be  allotted  to  the  cost  of  the  product  of  that 
month.  We  may  assume,  for  convenience  of  illustration, 
that  the  shop  is  "  departmentalized  "  in  the  cost-accounting 
system,  and  that  these  two  machines  constitute  the  whole  of 
one  department.  They  would  say  that  if  No.  2  machine  is 
idle,  its  burden  $36  must  be  added  to  the  $24  burden  of  No.  1 
machine  and  charged  against  the  product  of  that  machine, 
making  its  hourly  rate,  if  it  runs  160  hours  a  month  $60-^160 
=37.5  cents  instead  of  15  cents.  If  it  ran  full  time,  240 
hours,  its  hourly  rate  would  be  $60^240=25  cents,  and  if  it 
ran  half  time,  120  hours,  the  rate  would  be  $60  4- 120  =  50  cents. 


78 


BOOKKEEPING   AND   COST  ACCOUNTING 


On  the  other  hand,  if  No.  2  machine  ran  120  hours  and  its 
product  were  charged  with  its  normal  burden,  120X30 
=  $36.00,  machine  No.  1  would  have  no  supplementary  rate, 
if  it  ran  its  normal  time  of  160  hours,  and  its  burden  would  be 
15  cents  an  hour,  and  if  it  happened  to  run  full  time,  240 
hours,  the  supplementary  rate  would  be  a  negative  quantity 
and  the  hourly  burden  charged  to  the  cost  of  the  work  done 
on  No.  1  machine  would  be  only  $24-^240  =  10  cents. 

If,  however,  we  follow  the  normal  hourly  burden  method, 
the  amount  of  burden  to  be  charged  to  cost  of  product  would 
be  independent  of  the  number  of  hours  that  either  machine 
happened  to  run  in  any  given  month;  it  would  be  15  cents 
per  hour  on  No.  1  machine  and  30  cents  per  hour  on  No.  2 
machine.  The  burden  charged  to  cost  of  product  would 
then  be  as  follows  for  the  several  conditions  named. 


No.  I  Machine 

Unearned 

Over-earned 

burden,  loss 

burden,  gain 

Half  time 

120  hrs.  XI5^=$18 

$6 

%  full,  normal  time 

160  hrs.  XI5    =   24 

0 

Full  time 

240  hrs.  X  1 5    =   36 
No.  2  Machine 

0 

$12 

Vi  full  time 

80  hrs.  X30f!=$24 

$12 

M  time,  normal  time 

120  hrs.  X30    =   36 

0 

Full  time 

240  hrs.  X30     =    72 

0 

$36 

The  unearned  burden  may  be  charged  and  the  overearned 
burden  credited  to  Profit  and  Loss  each  month,  or  they  may 
remain  in  Burden  account,  which  is  charged  with  the  total 
factory  overhead  expense  each  month  and  credited  with  the 
total  earned  burden  which  has  been  charged  to  product,  the 


balance  of  the  account  being  closed  into  Profit  and  Loss  at 
the  end  of  the  year. 

An  important  exception  must  be  noted  to  the  rule  of  charg- 
ing to  the  cost  of  product  of  a  machine  the  normal  hourly 
burden  rate  of  that  machine.  It  is  in  the  case  of  a  machine 
that  bears  a  large  burden  being  used  to  do  work  that  is 
ordinarily  done  on  a  machine  with  a  smaller  burden  because 
the  first  or  larger  machine  happens  to  be  available  at  the  time 
and  is  not  needed  for  other  work,  while  the  second  machine  is 
crowded  with  work.  In  that  case  the  burden  charged  to 
cost  of  the  work  done  in  the  more  costly  machine  should  be 
the  normal  burden  of  the  smaller  machine.  The  fact  that 
the  smaller  burden  should  be  charged  in  such  a  case  should 
be  entered  on  the  Job  Card  when  it  is  issued  from  the  planning 
room  for  a  job  to  be  done  on  a  large  machine  that  could  be 
done  on  the  smaller  machine,  so  that  when  the  card  reaches 
the  cost-keeper  he  will  not  make  the  error  of  charging  the 
larger  burden. 

Another  Problem.  Thirty  machines,  symbol  A,  B,  C, 
ordered  in  January  to  be  delivered  before  April  1.  A  machine 
consists  of  3  pieces  A,  B,  C,  connected  by  30  bolts  and  nuts 
per  machine.  Only  one  operation  is  necessary  on  each  piece. 
A,  weighing  200  pounds,  is  bored  and  faced  on  a  large  boring 
mill.  B,  100  pounds,  is  turned  in  a  30-inch  lathe  and  C,  50 
pounds,  is  turned  on  a  10-inch  lathe.  Some  work  is  done  on 
each  of  three  months,  the  greatest  amount  in  March,  when 
the  factory  is  running  at  less  than  half  capacity.  In  Jan- 
uary and  February,  the  factory  is  running  at  80  per  cent  of 
capacity.  Labor  costs  decrease  from  month  to  month  as 
better  working  tools  are  provided  and  as  workmen  get  more 
skill  in  handling  the  pieces. 


Jan. 

Feb. 

Mar. 

A 

B 

C 

A 

B 

C 

A 

B 

C 

Castings  received 

5 

10 

0 

15 

10 

20 

10 

10 

10 

Castings  machined 

5 

5 

0 

10 

15 

15 

15 

10 

15 

Hours  per  piece 

10 

6 

0 

9 

5 

3 

8 

4 

2 

Wages  per  hour,  cents 

20 

25 

30 

20 

25 

30 

20 

25 

30 

Av.  Burden  on  Mach.,  cents. 

40 

25 

20 

40 

25 

20 

40 

25 

20 

Supplementary  Burden — 

Church's  method,  cents 

5 

5 

5 

10 

8 

6 

20 

15 

10 

Total  Burden,  cents 

45 

30 

25 

50 

33 

26 

60 

40 

30 

Wages  phis  Burden,  per  hr.  cts. 

65 

55 

55 

70 

58 

56 

80 

65 

60 

Wages  plus  Burden,  per  piece 

$6.50 

$3  30 

$1.68 

$6  30 

$2  90 

$1.68 

$6.40 

$2  60 

$1.20 

Wages  &  Av.  Burden,  per  piece 
Total  by  Church's  Method 

6.00 

3  00 

I    50 

5  40 

2  50 

1.50 

4.80 

2.00 

1.00 

$11   48 

$10  88 

$10  20 

Total  by  Average 

10.50 

9.40 

7.80 

The  figures  $1.68  and  $1.50  for  C  in  January  are  taken  from  the  February  record,  as  no  C  pieces  were  made  in  January. 


The  cost  of  castings,  bolts,  drilling  bolt-holes,  and  assem- 
bling may  be  taken  as  the  same  each  month,  so  they  may  be 
omitted  from  the  problem. 

According  to  the  figures  the  cost  of  labor  and  burden  per 
machine  A,  B,  C,  varies  from  $7.80  to  $11.48.  What  cost 
figure  should  be  used  in  inventorying  these  machines  on 
April  1,  and  what  figure  should  be  used  in  making  estimates 
on  machines  to  be  built  in  the  future?  Evidently  $7.80  is 
the  correct  figure,  for  this  is  the   cost  of  labor  and  burden 


(exclusive  of  drilling  and  assembling)  at  which  the  machines 
can  be  reproduced. 


THE 


OF 


"  SUPPLEMENTARY  RATE  "   METHOD 
DISTRIBUTING   BURDEN 

Mr.  A.  Hamilton  Church  in  his  little  book  on  "  The  Proper 
Distribution  of  Expense  Burden "  (Engineering  Magazine, 
1908)  describes  a  method  of  distributing  burden  which  is 
based  on  the  principle  that  the  cost  of  the  product  of  a  shop 


DISTRIBUTION   OF   BURDEN 


79 


in  a  given  month  must  include  all  the  shop  charges  of  that 
month  whether  or  not  a  large  part  of  the  machinery  is  idle. 
He  describes  the  method  as  follows: 

"First,  we  consider  each  machine  as  an  independent  producing 
centre,  allocating  to  such  centres  all  the  expenses  and  charges 
which  can,  on  reasonable  analysis,  be  considered  chargeable  as  a 
composite  rent  or  machine  rate  method  for  all  the  factors  of 
production  therein  concerned.  Second,  we  charge  to  a  monthly 
shop-charges  account  all  charges  whatever  incurred  in  that  shop, 
including  all  the  items  specifically  represented  in  fractional 
detail  by  the  machine  rates,  and  also  including,  of  course,  such 
general  items  as  cannot  be  represented  in  the  machine  rates,  of 
which  the  most  obvious  item  is  the  supervision  of  a  head,  or 
foreman. 

"Then  as  each  machine  is  occupied  on  jobs,  the  latter  are 
debited  with  so  much  per  hour  as  machine  rate,  and,  at  the  end 
of  the  month  the  total  amount  so  earned  is  deducted  from  the  total 
shop  expenses,  leaving  a  balance  which  is  distributed  over  the 
same  jobs  as  a  supplementary  rate.  The  ratio  of  the  supple- 
mentary rate  to  the  amount  distributed  by  the  machine  rates 
forms  a  varying  barometer,  whose  fluctuation  is  an  index  to  the 
current  efficiency  of  the  shop.  In  proportion  as  all  machines 
are  not  kept  full  of  work  all  the  time,  this  ratio  of  the  supple- 
mentary rate  to  the  amount  distributed  by  the  machine  rates 
will  begin  to  rise.  The  same  effect  will  occur  if  any  general  kind 
of  expenditure  is  increased. 

"There  remains  the  question  on  what  basis  the  additional 
distribution  shall  take  place.  It  may  be  made  into  an  hourly 
burden,  or  which  is  simpler  may  be  reduced  to  a  percentage  of 
increase  on  the  amount  already  distributed  by  the  machine 
rate.  ...  It  is  to  be  preferred  that  the  supplementary  rate 
should  be  an  hourly  burden  rate. 

"  The  supplementary  rale  is  the  undistributed  balance  of  shop 
charges  due  to  idleness  of  productive  centres." 

Mr.  Church's  method  was  favorably  received  by  many 
writers  on  accountancy,  and  was  adopted  by  some  account- 


ants who  introduced  it  into  shops.  The  author  believes 
that  he  was  the  first  to  publish  a  condemnation  of  it.  lh' 
was  then,  in  1909,  introducing  into  a  machine  shop  a  system 
of  cost  accounting  based  on  the  machine-hour  rate  method, 
the  hourly  burden  rates  for  the  several  machines  being 
"  normal  "  rates  which  were  to  be  kept  constant  for  a  year 
or  more,  and  obtaining  a  copy  of  Mr.  Church's  book  wrote 
a  brief  review  of  it  for  the  Iron  Trade  Review,  February  4, 
1909,  in  which  appears  the  following: 

"The  supplementary  rate  in  its  variations  is  not  really  an 
index  of  the  current  efficiency  of  the  shop  but  it  is  an  index  of  the 
condition  of  business  generally,  or  of  the  efficiency  of  the  selling 
department,  which  brings  orders  into  the  shop.  The  efficiency 
of  the  shop  itself  should  be  determined  not  by  an  accidental  sup- 
plementary rate  which  may  appear  in  each  month  but  should  t  e 
measured  by  comparing  the  labor  cost  for  a  particular  job  done 
on  a  particular  machine  at  one  period  of  the  year  with  another, 
the  machine  itself  being  charged  with  the  same  burden 
throughout  the  year.  Attempts  to  charge  to  the  cost  of  jobs  in  a 
particular  month  a  supplementary  rate  whose  variations  are  not 
due  to  any  inefficiency  in  the  shop  management  but  entirely  to 
accidental  fluctuations  in  business  outside  of  the  shop,  not  only 
introduce  great  confusion  in  bookkeeping,  but  may  give  the 
management  erroneous  ideas  as  to  what  the  real  shop  effi- 
ciency is." 

Application  of  the  Supplementary  Rate.  Mr.  Church 
gives  an  example  of  the  use  of  his  method  as  applied  to  some 
work  done  in  a  machine  shop,  which  is  given  in  condensed 
form  below.  In  January  the  machines  worked  full  time, 
consequently  the  supplementary  rate  was  very  low,  2\  cents 
per  hour;  in  November  the  shop  worked  barely  half  time 
and  consequently  the  supplementary  rate  rose  to  14  cents  per 
hour. 


Shop  Charges  Account 


Debits 


Credits 


Jan. 

Nov. 

1 

1 

Jan. 

Nov. 

Interest  on  Machines 

Depreciation  on  Machines 

Power 

Wages  on  Auto  Machines 

Process  Sundries,  Oil,  etc. 

Floor  burden,  5000  sq.  ft.  at  5{! 

Supervision  (general) 

$  53 
53 
100 
75 
45 
250 
100 

00 
00 
00 
00 
00 
00 
00 

$  53 
53 
62 
55 
25 
250 
100 

00 
00 
00 
00 
00 
00 
00 

By  machine  earnings 

(Being  total  amount  distributed  tojobsby  means 
of  machine  rates) 

Undistributed  balance 

$576 
100 

00 

00 

$292 
305 

53 
47 

Total  debit 

$676 

00 

$598 

00 

$676 

00 

$598 

00 

Total  hours,  January,  4400;      November,  2187 

Hourly  burden  on  the  average  hourly  plan: 

676  ,  598  , 

Jan.  =  15.4c;       Nov.  =  27.30  per  hr. 

4400  2187  y 

Cost  Statement  of  Job 


Supplementary  Rate: 

100  , 

Jan.  =2  27  p  per  hr. 


4400 

305   47 


Nov. 


2187 


I4f*  per  hr 


Jan. 

Nov. 

10  hours  Mach.  No.  9  at    4f* 

0.40 

6  hours  Mach.  No.    8  at  34(i 

2.04 

12  hours  Mach.  No.  1 7  at  15^ 

1.80 

3  hours  Mach.  No.    3  at  23$£ 

.69 

4.93 

4.93 

10  hours  wages  at  31 

3.10 

6  hours  wages  at  10 

60 

3  hours  wages  at  1-4 

.42 

4   12 

4  12 

Supplementary  rate,  31  hra.  at  2.27(* 

.70 

at  \4<t,    4   34 

Total  Works  Cost 

$9.75 

$13.39 

"  The  works  cost  of  this  job  has  gone  up  from  $9.75  to 
$13.39,  although  precisely  the  same  machine  time  and  the 
same  amount  of  wages  was  expended  in  the  one  period  as  in 
the  other." 

Now,  what  is  the  use  of  this  "works  cost"  of  $13.39? 
It  gives  no  information  as  to  what  is  the  value  at  which  the 
product  should  be  inventoried  if  it  remains  unsold  on  Dec.  31. 
If  we  inventory  it  at  $13.39  we  have  overvalued  it  at  least 
$13.39 -$9.75  =$3.64,  or  37.3  per  cent,  and  have  increased 
the  apparent  or  book  profits    by  that  amount,  and  corre- 


80 


BOOKKEEPING  AND   COST  ACCOUNTING 


spondingly  decreased  the  book-profits  of  the  next  year, 
when  the  goods  are  sold.  It  gives  no  information  as  to  what 
the  probable  cost  of  the  product  will  be  next  year,  or  any 
basis  for  fixing  selling  prices.  It  does  nothing  except  to 
enable  the  bookkeeper  to  balance  his  books  in  such  a  way  as 
to  charge  the  goods  produced  each  month  with  the  whole 
expense  of  the  factory,  including  the  expense  of  idle  time,  in 
that  month,  and  to  cause  the  books  to  hide  the  fact  that  the 
factory  lost  money  in  November  on  account  of  the  idle  time. 

If  the  "  normal  burden  "  method  of  cost-keeping  had  been 
used,  assuming  that  the  machine-hour  rates,  total  $4.93,  are 
those  of  a  normal  year,  then  the  works  cost  of  the  product 
would  have  been  the  same  in  both  months,  and  the  undis- 
tributed burden  would  al  the  end  of  the  year  be  charged 
to  Profit  and  Loss. 

Suppose  a  job  is  done  on  the  last  day  of  the  month,  which 
has  a  normal  supplementary  rate,  and  an  exactly  similar  job 
is  done  on  the  first  day  of  the  next  month,  but  on  account 
of  the  slackness  of  business  the  supplementary  rate  in  that 
month  is  extravagantly  large.  The  cost  of  these  two  jobs 
will  appear  on  the  books  as  very  different  although  their 
actual  cost  was  the  same. 

It  is  only  fair  to  Mr.  Church  to  say  that  in  his  recent  book, 
"  Manufacturing  Costs  and  Accounts  "  (1917),  he  has  prac- 
tically abandoned  the  "  supplementary  rate."  After  giving 
a  supposititious  and  exaggerated  case  of  its  application  he 
says  (p.  74) : 

"In  the  case  cited  such  apparent  cost  has  no  real  value  at  all. 
It  is  so  obviously  fictitious  that  no  one  would  be  inclined  to 
regard  it  seriously  for  a  moment.  What  is  the  purpose  in  dis- 
tributing the  wasted  expense  over  orders  in  this  way.  First  it  is 
a  concession  to  those  accountants  who  desire  to  get  rid  of  all 
shop  expense  onto  product  as  they  have  been  accustomed;  ..." 

Postscript. — However,  he  does  not  seem  to  have  altogether 
abandoned  the  supplementary  rate,  for  he  uses  it  in  an  exam- 
ple five  pages  later,  and  on  page  353  he  says: 

"If  it  takes  $40  machine  time  to  do  a  certain  job  to-day,  when 
the  shop  is  busy,  it  should  not  take  any  more  machine  time  next 
month  when  the  shop  is  slack.  But  if  the  machine  should  earn 
$80  in  a  month  and  thus  be  capable  of  doing  two  such  jobs  when 
the  work  is  there  for  it  to  do,  that  is  no  reason  for  charging 
$80  as  machine  time  in  the  slack  season.  It  is  much  better  if  we 
express  the  cost  of  the  job  in  the  slack  season  in  two  parts  thus: 
Machine  time,  $40;  Supplementary  rate,  $40;  Factory  cost,  $80. 
There  are  certain  cases  when  it  might  be  valuable  to  charge  the 
cost  of  wasted  manufacturing  capacity  to  a  special  account  and 
so,  later,  to  Profit  and  Loss.  By  this  means  the  true  cost  of 
doing  the  work  would  be  known,  the  true  profit  on  each  order 
would  also  be  known,  and  the  loss  due  to  unemployed  capacity 
of  the  plant  would  be  kept  as  a  separate  item.  No  clear  and 
general  rule  can,  therefore,  be  laid  down  as  to  whether  the  cost 
of  wasted  manufacturing  capacity  should  be  distributed  over 
Orders  by  means  of  a  supplementary  rate  or  charged  to  a  Waste 
Account  and  so  to  Profit  and  Loss.  It  does  not  follow  in  all 
cases  that  this  waste  is  due  to  the  conditions  of  trade.  It  is 
also  sometimes  due  to  poor  management." 

It  thus  appears  that  Mr.  Church  is  now  "  on  the  fence  " 
as  regards  the  supplementary  rate,  as  he  is  on  the  question 
of  including  interest  in  cost.  Regarding  this  he  says  (page 
394) :  "  It  is  a  matter  of  option  whether  it  is  included  in 
costs;   but  if  it  is  not,  some  of  the  advantages  of  advanced 


accounting  are  lost.  Whether  there  are  disadvantages  that 
counterbalance  its  inclusion  on  this  ground  remains  at  present 
a  matter  of  opinion." 

A  Common  Fallacy  of  the  Old  School  of  Accountants 

"  There  must  be  no  evasion  of  the  prime  fact  which  underlies 
all  true  costing.  All  the  expenditure  of  the  firm;  all  wages  of 
managers,  foremen,  draughtsmen  and  clerks,  all  materials  and 
workmen's  wages;  and  depreciation  of  plant  and  buildings 
(which,  under  another  form,  is  payment  for  their  use) ;  in  6hort, 
all  the  expenditure  which  appears  on  the  debit  side  of  Trad- 
ing Acct.  is  cost  of  production  and  must,  in  some  form  or  other 
appear  in  the  Cost  Accounts.  The  costings  should  be  com- 
pleted to  the  close  of  each  month,  as  longer  periods  would  involve 
much  complication,  and  it  is  essential  for  correct  results  that 
the  establishment  charges  for  any  one  month  are  distributed  over  the 
direct  wages  for  that  month." — Burton. 

Suppose  that  a  factory  is  building  engines.  The  cost  of  an 
engine  is  the  sum  of  the  labor  and  material  costs  of  each  of  its 
parts,  plus  the  cost  of  assembling  and  finishing  it  and  putting 
it  on  cars,  plus  the  proportion  of  the  establishment  charges 
that  should  be  charged  to  the  cost  of  the  engine.  The 
building  of  an  engine  may  be  done  in  parts  of  three  months. 
The  drawings  and  patterns  are  finished  in  the  first  month; 
the  castings  some  in  the  first  month  and  some  in  the  second, 
and  the  replacement  of  a  defective  casting  in  the  third;  the 
machine  work  in  the  second  and  third  months;  and  the  assem- 
bling, testing  and  shipping  all  in  the  third  month.  Suppose 
that  the  establishment  charges  (salaries  of  managers,  fore- 
men, clerks,  draughtsmen,  expenditures  for  light,  heat  and 
power,  interest  on  investment,  insurance,  taxes,  depreciation, 
etc.),  are  practically  the  same  for  each  month,  say  $10,000 
per  month,  but  that  the  wages  differ  widely  in  the  three 
months,  the  first  month  only  $5000  on  account  of  stoppages 
due  to  strikes  or  accidents,  the  second  $15,000,  on  account 
of  running  overtime,  and  the  third  $10,000,  when  shop  con- 
ditions are  normal.  According  to  Mr.  Burton  "  it  is  essen- 
tial for  correct  results  that  the  establishment  charges  for  any 
one  month  are  distributed  over  the  direct  wages  for  that 
month."  This  was  practically  the  universal  opinion  of  the 
old  school  of  accountants.  By  this  method  of  distribution 
each  $100  of  wages  charged  to  this  engine  in  the  first  month 
would  be  saddled  with  $200  burden,  in  the  second  month  with 
$66.67  and  in  the  third  month  with  S100.  The  cost  of  the 
engine  arrived  at  in  this  way  would  be  of  use  only  to  the 
bookkeeper — it  would  enable  him  to  balance  his  cost  accounts, 
but  it  would  be  of  no  use  to  the  factory  management  or  to 
the  sales  department.  It  could  not  be  used  properly  for  an 
inventory  value  nor  as  a  basis  for  fixing  the  selling  price  of 
another  engine  of  the  same  kind  and  size. 

"A  False  Theory.  There  are  several  well-known  methods  of 
charging  burden  to  cost,  each  more  or  less  justified  by  the  various 
conditions  in  different  lines  of  industry.  These  methods  have 
one  point  in  common,  however,  in  that  they  contemplate  charging 
all  of  the  burden  against  the  product,  made,  regardless  of  whether 
the  plant  is  running  at  full  or  part  capacity.  The  result  is  that 
during  periods  of  forced  production  costs  seem  low,  while  during 
periods  of  curtailed  production  costs  seem  high,  since  all  of  the 
burden  is  distributed  over  a  greater  or  lesser  production. 

"  At  the  extreme  periods  in  the  cycle  between  business  depres- 
sion and  prosperity  this  method  of  handling  burden  gives  widely 


DISTRIBUTION   OF   BURDEN 


81 


fluctuating  costs  and  causes  many  of  the  present  systems  of 
cost  accounting  to  fail  just  when  they  are  most  needed. 

"The  Correct  Theory.  Contrary  to  the  general  practice 
stated  above,  the  fact  is  that  only  a  part  of  the  total  burden  is 
chargeable  to  the  manufacturing  cost  of  the  product  made  during 
periods  of  curtailed  production,  the  part  chargeable  being  the  same 
percentage  of  the  total  burden  as  the  curtailed  production  is  of  the 
standard  production.  The  burden  not  chargeable  represents  the 
cost  of  unused  capacity  for  manufacturing,  and  is  an  expense  to 
be  deducted  from  profits.  The  cost  of  this  unused  capacity  for 
manufacturing  must  be  disposed  of  in  some  manner. 

"  Consider  a  manufacturer  who  can  either  make  his  product 
entirely  at  his  own  plant  or  buy  some  of  the  parts.  At  a  time 
whrn  business  is  poor  his  cost  records  show  that  a  certain  parts 
costs  20  cents  to  manufacture  whereas  it  could  be  purchased 
for  IS  cents.  The  elements  of  the  20-cent  cost  are  4  cents  for 
material,  S  cents  for  labor  and  S  cents  for  burden.  During  a 
busy  period  the  cost  of  the  piece  was  16  c£nts  because  the  burden 
charge  was  then  4  cents  instead  of  8  cents. 

"  Now  if  the  manufacturer  had  found  that  he  could  buy  the 
parts  at  a  saving  of  2  cents  each  when  operating  at  fidl  capacity 
he  might  well  have  done  so.  His  costs  would  have  then  shown 
him  an  opportunity  to  save  money.  But  if  he  is  guided  blindly 
by  his  costs  in  a  dull  period,  and  purchases  the  parts,  he  simply 
increases  his  losses.  He  will  lose  the  least  money  by  continuing 
to  make  the  part  at  an  apparent  loss.  In  doing  so  he  disregards 
his  costs.  They  have  failed.  Reliable  costs,  comparable  under 
all  conditions,  are  not  to  be  secured  unless  the  burden  charged 
to  production  is  only  that  pertaining  to  the  equipment  that  is 
actually  at  work." — Clinton  H.  Scovell. 

Mr.  H.  L.  Gantt,  in  a  paper  on  "  The  Relation  between 
Production  and  Costs,"  1915  (Trans.  A.  S.  M.  E.,  vol  37), 
uses  practically  the  same  arguments  as  Mr.  Scovell,  and 
reaches  the  same  conclusions.     He  says: 

"  Most  of  the  cost  systems  in  use,  and  the  theories  on  which 
they  are  based,  have  been  devised  by  accountants  for  the  benefit 
of  financiers,  whose  aim  has  been  to  criticise  the  factory  and 
to  make  it  responsible  for  all  the  shortcomings  of  the  business. 
In  this  they  have  succeeded  admirably,  largely  because  the 
methods  itsed  are  not  so  devised  as  to  enable  the  superintendent  to 
present  Ins  side  of  the  case.  Our  theory  of  cost  keeping  is  that 
one  of  its  prime  functions  is  to  ermble  the  superintendent  to  know 
whether  or  not  he  is  doing  the  work  he  is  responsible  for  as  econom- 
ically as  possible,  which  function  is  ignored  in  the  majority  of 
cost  systems  now  in  general  use.  Many  accountants,  who  make 
an  attempt  to  show  it  are  so  long  in  getting  their  figures  in  shape 
that  they  are  practicallj'  worthless  for  the  purpose  intended, 
the  possibility  of  using  them  having  past. 

"  The  indirect  expenses  chargeable  to  the  output  of  a  factory  should 
bear  the  same  ratio  to  the  indirect  expense  necessary  to  run  the 
factory  at  normal  capacity  as  the  output  in  question  bears  to  the 
normal  output  of  the  factory. 

"  The  view  of  costs  so  largely  held,  namely,  that  the  product  of  a 
factory,  however  small,  must  bear  the  total  expense,  however  large, 
is  responsible  for  much  of  the  confusion  about  costs  and  hence 
leads  to  unsound  business  policies. 

"  The  only  expense  logically  chargeable  to  a  product  is  that  needed 
for  its  production  when  the  factory  is  running  at  full  or  normal 
capacity.  What  I  propose  as  the  real  cost  of  an  article  is  not 
what  it  has  apparently  cost  in  the  past,  but  what  it  should  cost 
if  the  proper  manufacturing  methods  were  used  and  the  shop 
were  run  at  full  capacity.  This  might  be  called  the  ideal  cost, 
and  toward  its  attainment  all  efforts  should  be  directed." 

THE   LAST  WORD   ON   BURDEN— STANDARD    BURDEN 
PER    UNIT    OF    FINISHED    PRODUCT 

Under  scientific  management  efforts  are  made  to  obtain 
standards  for  every  element  in  manufacturing,  including 
quantity  and  quality  of  raw  material,  output  of  machines, 


efficiency  <>f  labor,  and  time  and  wages  for  each  operation. 
By  means  of  time,  motion  and  fatigue  studies  the  methods  of 
doing  the  various  operations  are  standardized,  and  by  the 
task  and  bonus  system  of  wage  payments  the  labor  cost  of 
any  operation  may  be  predetermined  within  a  narrow  range 
of  variation.  The  standardization  of  burden  is  a  more  dif- 
ficult problem,  but  it  may  be  accomplished  whenever  the  same 
articles  of  product  are  made  continuously  or  frequently. 

Suppose  that  a  certain  product,  which  is  regularly  made  in 
large  quantities,  year  after  year,  consists  of  four  groups 
assembled  together,  each  group  having  an  average  of  five 
pieces,  and  each  piece  requiring  on  an  average  five  operations. 
In  this  case  there  would  be  a  hundred  operations  on  each 
finished  article  (in  the  case  of  a  typewriter,  a  cash  register  or  a 
calculating  machine  the  number  of  operations  might  run  into 
the  thousands).  In  the  ordinary  accounting  system,  for  a 
hundred  operations  on  a  given  lot  on  one  office  order  (whether 
the  lot  be  a  single  article,  as  in  the  case  of  a  large  engine,  or 
ten  thousand  articles  as  in  the  case  of  small  articles  like  clocks 
or  valves)  at  least  a  hundred  separate  job  tickets  would  have 
to  be  written — more  than  a  hundred  if  some  of  the  operations 
on  a  given  lot  lasted  more  than  a  week  and  a  new  job  ticket 
was  issued  each  week  that  the  job  lasted,  perhaps  a  thousand 
if  a  new  job  ticket  was  issued  each  day.  Each  of  these 
tickets  would  contain  a  great  mass  of  detailed  information 
(see  the  job  tickets  on  pages  59  and  60).  They  would 
include  the  workman's  name  and  number,  his  time,  usually 
stamped  by  a  clock,  his  wage  or  piece  rate,  the  bonus  earned 
and  the  total  wages,  all  of  which  would  be  necessary  in  order 
to  make  up  the  pay  roll,  and  besides  this,  for  cost  and  sta- 
tistical purposes,  the  office  order  number,  the  job  number,  the 
piece  and  the  operation  symbol,  the  machine  number  or 
symbol,  the  number  of  pieces  operated  on,  and  finally,  if 
the  machine-hour  rate  method  of  distributing  burden  is  used, 
the  burden  figures  corresponding  to  the  machine  hours  and 
rate.  Each  one  of  these  job  tickets,  under  the  old  system, 
is  posted,  with  all  its  variety  of  detail,  onto  piece  cost  cards 
or  into  a  piece  cost  ledger,  and  when  the  pieces  are  assem- 
bled into  groups  and  the  groups  into  the  finished  product 
the  assembling  job  tickets  are  further  posted  into  cards  or 
ledgers  in  order  to  obtain  the  total  cost  and  the  unit  cost  of 
the  finished  product. 

In  one  factory  visited  by  the  author  there  were  thirty  loose- 
leaf  cost  ledgers,  each  containing  probably  2000  pages, 
making  60,000  cost  pages  in  all.  Each  one  of  these  pages 
would  have  to  be  examined  by  a  clerk  at  least  once  in  order 
to  obtain  the  cost  figures  for  use  in  inventory  valuations  of 
finished  parts  in  stock  and  of  finished  products  in  the  ware- 
house, and  a  statistician  might  examine  them  in  order  to 
obtain  figures  for  his  statistical  reports  and  comparisons  of 
costs  at  one  period  with  those  at  another,  but  except  for  these 
purposes  all  these  books  and  all  the  costly  pen-and-ink  work 
in  them  are  of  little  or  no  value  to  any  one. 

The  machine-hour  rate  system  of  distributing  burden  is, 
undoubtedly,  the  best  yet  found  for  approximating  the  true 
cost  of  a  manufactured  product,  and  when  the  product  ((in- 
sists of  many  pieces,  each  requiring  numerous  operations, 
it  is  necessary  to  obtain  the  burden  for  each  operation,  but 


82 


BOOKKEEPING  AND   COST  ACCOUNTING 


having  once  determined  the  cost  of  a  given  lot,  and  having 
standardized  the  cost  of  raw  material  and  of  labor  for 
each  piece  and  for  the  assembled  product,  the  total 
burden  charges  obtained  by  adding  together  all  the 
burden  charges  for  the  several  operations  may  then  be 
taken  as  the  standard  total  burden  for  all  similar  lots, 
and,  thereafter,  there  is  no  need  of  figuring  the  burden  on 
each  separate  operation  until  there  is  a  change  in  the  method 
or  in  the  speed  of  manufacturing,  or  until  there  is  a  change 
in  the  monthly  charges  against  Burden  Account,  such  as 
rent,  insurance,  taxes,  superintendence,  indirect  labor, 
reserves  for  depreciation,  etc. 

A  vast  amount  of  clerical  work  may  thus  be  saved.  This 
plan  of  using  a  standard  burden  per  unit  of  finished  product 
may  make  it  possible  to  introduce  an  entirely  satisfactory 
cost  system  into  some  large  factories  where  the  old  method 
of  figuring  the  burden  separately  on  each  job  ticket  would  be 
so  costly  as  to  make  it  impracticable. 

When  the  standard  task  and  bonus  rates  and  the  standard 
burden  per  unit  of  finished  product  have  been  established 


there  is  no  need  of  writing  a  separate  job  ticket  for  each 
operation,  or  even  for  each  piece  or  lot  of  similar  pieces.  A 
weekly  time  ticket  is  issued  to  each  workman,  on  one  side 
of  which  is  stamped  the  clock  figures  for  "  in  "  and  "  out," 
morning  and  afternoon,  and  on  the  other  side  is  entered  the 
count  of  pieces  finished  each  day,  or  each  operation,  together 
with  the  piece  and  operation  symbols  and  the  office  order  or 
lot  number,  which  takes  the  place  of  the  separate  job  ticket 
numbers  in  the  old  system. 

Example.  Suppose  a  certain  product,  106X,  is  made 
of  two  pieces,  A  and  B,  and  each  piece  has  three  machine 
operations.  An  experimental  lot  has  been  made,  the  best 
process  of  manufacture  has  been  determined,  time,  motion 
and  fatigue  studies  have  been  made  for  each  operation, 
standard  times,  tasks*  and  bonuses  have  been  fixed,  and  the 
burden  on  each  machine  operation  and  on  assembling,  fin- 
ishing, testing  and  packing  has  been  calculated  on  the  ma- 
chine-hour rate  basis. 

A  standard  schedule  of  operations  is  then  made  out  as 
follows : 


Operation   Schedi  le 

FOR 

106X 

Operation 
No. 

Machine  No. 

Time  for 

1  00  pieces 

hours 

Wage  per 

hour,  base 

cents 

Piece  rate 
per  100 

Bonus 
30  per  cent 

Labor 
per 

cost 
00 

Burden 

Total 
labor  and 

Piece 

per  ma- 
chine hour 

per  100 

burden  per 
100 

A 

1 

S7 

4 

3 

25 

1 

03 

0 

32 

$1 

40 

0 

40 

0 

72 

3 

12 

2 

T6 

2 

7 

30 

81 

24 

1 

05 

30 

81 

1 

86 

3 

M10 

6 

0 

25 

1 

50 

45 

1 

95 

50 

4 

00 

4 

95 

B 

1 

P3 

5 

1 

30 

1 

53 

46 

1 

99 

40 

3 

04 

4 

03 

2 

Dll 

1 

9 

25 

48 

14 

62 

30 

57 

1 

19 

3 

T6 

3 

4 

30 

1 

02 

31 

1 

33 

30 

1 

02 

2 
17 

35 

23 

4 

6 

42 

' 

92 

8 

24 

9 

16 

50 

Assemble 

Bench 

1 

0 

'0 

— 

— 

40 

15 

0 

15 

55 

Finish 

Bench 

0 

5 

40 

— 

— 

20 

15 

08 

28 

Test 

Bench 

0 

2 

40 

— 

— 

08 

15 

03 

II 

Pack 

Bench 

1 

0 

40 

40 

15 

15 

55 

2 

7 

1 

08 

41 

1 

49 

Total,  10 

)  articles 

26 

1 

9 

42 

9 

57 

18 

99 

An  office,  or  production,  order  may  read  as  below: 
Order  No.  1761.     Jan.  2,  1917. 
Make  10,000- 10GX,  in  10  lots. 
1000  per  month. 

The  weekly  time  ticket  of  a  man  working  on  Machine  T6 
may  show  the  following: 

Time  Ticket,  Week  Ending  Jan.  14,  1917. 
Name,  J.  Jones.  No.  87 


(Reverse  side  ol 

card). 

Order 

Article 

Piece 

and 

oper'n 

Mach. 

Start 

Finish 

Hours 

Pieces 

Finish 
or  not 

1761 

I06X-1 

A? 
B3 

TS 
T6 

'A7A 
Vn  4P 

Vn  4P 

26 

24 

1010 

700 

F 
XF 

Jan. 

In 

Ouc 

In 

Out 

Hours 

9 

M 

12 

5 

9 

10 

T 

12 

5 

9 

11 

W 

12 

5 

9 

12 

Th. 

12 

5 

9 

13 

F 

12 

5 

9 

14 

S 

12 

+ 

5 

50 

Cr.  Labor  1010  at  1.05  per  100  10  60 

700  at  1.33  per  100  9.31 

Chg.  I06X-I  19.91 

When  the  time  ticket  is  turned  in  at  the  end  of  the  week 
the  pay  roll  clerk  credits  Jones  $19.91  and  puts  the  card  in  a 
file  of  unfinished  orders,  in  a  folder  marked  106X.  When 
all  the  operations,  including  the  packing,  on  the  lot  have 
been  completed  the  cards  are  taken  out  of  the  folder,  and  the 
total  labor  costs  are  added  on  the  adding  machine  and 


DISTRIBUTION   OF   BURDEN 


83 


entered  on  a  Finished  Product  Cost  Card.  The  total  amount  or  finished  parts  returned  to  stores,  taken  from  Charge 
of  the  material  issued  for  the  order,  taken  from  the  Stores  Stores,  Credit  Work  in  Process  cards,  are  also  entered  on  the 
Issue  Cards,  and  a  credit  to  the  job  for  scrap  unused  material      Cost  Card.     The  card  may  contain  the  following  information: 


Finished   Product 

Cost 

Card. 

Article  I05X. 

Lot  Ordered  1000 

Date 
Finished 

Order 
and  Lot 

Cost  of 
Material 

Labor 
Standard 

Labor 
Actual 

Burden 
Standard 

Finished 

Spoiled 

Credit 
Charge  stun- 

Charge 
Warehouse 

Co8t 
per   IUU 

Jan.  28 

1761-1 

1      50 

00 

94         20 

96 

40 

95 

70 

995 

A,  15;    B,   10 

2            60 

240 

00 

24          12 

When  this  entry  has  been  made  in  the  cost  card,  an  entry  The  next  month  the  weekly  memorandum  may  show: 

is  made  on  a  memorandum  for  Journal  Entry  as  follows:  Completion  of  106X,  lot  1. 

Feb.  3.     Labor.  23.70 

Materia]  issued  2.00 

Scrap  returned  0  B0 


Factory  Costs.     Month  of  January,    1917 


Charge 

Credit 

Article 

Store 

Work  in 
Process 

Store 

Labor 

Burden 

Total 

106  X-l 

2 

6(1 

240.  00 

50 

Si) 

96 

40 

95 

711 

242 

60 

And  at  the  end  of  the  month  the  several  columns  in  this 
memorandum  are  posted  and  the  totals  entered  in  the  Journal- 
Ledger.  The  total  credits  to  labor  should  equal  the  total  of 
the  direct  labor  pay  roll,  and  the  total  credits  to  stores  should 
equal  the  total  of  the  Stores  Issue  tickets  for  material  issued 
for  work  in  process. 

If  the  lot  is  not  completed  by  the  end  of  the  month  and  it 
is  desired  to  balance  the  factory  accounts  monthly  a  modifi- 
cation of  the  method  is  made.  A  memorandum  of  the  weekly 
charges  and  credits  to  lot  106X-1  is  made  as  below: 

Weekly  Direct  Labor  Charges. 
Order  1761— Article  106X.     Lot  1. 


1917  January  7 
14 
21 
28 
31 


7.25 
24  60 
14.30 
21.40 

5.15 

72.70 


Material  issued,  per  stores  tickets 
Scrap  returned,  charge  stores 
Not  finished 

Standard  Labor  Cost,  if  finished 
Estimated  Labor  Cost  to  finish 
Estimated  burden  for  work  done 


48.50 
1.80 


94.20 
21.50 


72  70 
94.20' 


■  of  95.70=69.57. 


be 


The  entry  in  the  memorandum  for  Journal  Entry  then  will 


Charge 

Credit 

Store 

Work  in 
Process 

Store 

Labor 

Burden 

106  X-l  (N.F.) 

1       80 

188 

■n 

48 

50 

72 

70 

69 

57 

and  the  Journal  Entry  Memorandum  for  February: 

Charge 

Credit 

Store 

Work  in 
Process 

Store 

Labor 

Burden 

106  X-l  (F) 

0 

0 

51 

in 

2 

mi 

23 

70 

26       13 

The  burden  charge  being  the  difference  between  the 
standard  burden,  S95.70  for  1000  articles,  and  the  $69.57 
charged  in  January. 

This  method  of  calculating  the  burden  for  the  two  months 
separately  (in  proportion  to  the  direct  labor  cost  in  each 
month)  is,  of  course,  inaccurate,  for  the  work  done  in  the 
first  month  probably  included  most  of  the  work  on  the  large 
machines  carrying  an  hourly  burden  rate  of  40  and  50  cents 
while  the  work  in  the  second  month  was  largely  bench  work 
with  a  burden  charge  of  only  15  cents  per  hour.  A  more 
accurate  method  of  apportioning  the  burden  for  the  two 
months  would  be  to  take  from  the  time  tickets  the  machine 
hours  of  the  work  done  and  from  the  standard  schedule  the 
machine  rates,  but  this  would  involve  an  amount  of  clerical 
labor  that  would  probably  not  be  worth  its  cost.  The  error 
made  by  the  shorter  method  of  estimating  the  burden  of  the 
first  month,  whatever  it  may  be,  is  corrected  in  the  second 
month  by  charging  the  difference  between  the  standard 
burden  for  the  whole  month  and  the  amount  already  charged 
in  the  first  month. 

The  object  of  cost  accounting  is  to  arrive  at  the  factory 
cost  of  the  product  when  it  is  completed  and  delivered  to  the 
warehouse,  and  not  to  make  a  monthly  balancing  of  the 
accounts.  An  overcharge  or  undercharge  of  burden  on  the 
separate  portions  of  a  given  lot  finished  or  partly  finished  in 
two  or  three  different  months  is  of  no  serious  importance 
when  it  is  considered  that  the  machine-hour  rate,  while  the 
nearest  approximation  to  an  accurate  burden-charging 
method  is  still  but  an  approximation. 

Moreover  the  "  factory  cost  "  which  is  most  important 
is  not  always  the  actual  expenditure  incurred  by  the  factory 
in  making  a  given  portion  of  its  product,  but  the  figure  at 
which  the  product  should  be  charged  in  the  warehouse  inven- 


84 


BOOKKEEPING  AND   COST  ACCOUNTING 


tory  and  charged  to  the  sales  department;  not  what  the 
product  cost  to  make  in  the  past  under  possibly  unfavorable 
conditions,  but  what  it  should  cost  at  the  present  time  or  in 
the  near  future  under  normal  conditions,  in  other  words 
the  probable  cost  of  reproduction.  It  is  the  figure  to  be  used 
in  computing  the  factory  profit  and  loss  at  the  end  of  the  year 
or  other  fiscal  period,  and  the  figure  to  be  used  as  a  basis  for 
establishing  the  minimum  selling  price.  "  Warehouse  value  " 
might  be  a  better  name  for  it. 

Interpretation  of  the  Recorded  Cost  Figures.  Recapit- 
ulating the  figures  from  the  above  example  we  have  the  fol- 
lowing: 


Material 

Direct 
Labor 

Burc 

en 

Spoiled 

Charge 

Stores 

Warehouse 
Value 

Cost 
per  100 

Standard,  1000.  .  . 

50 
50 
49 

00 

50 
75 

94 
96 
93 

20 
40 
73 

95 
95 
95 

70 
70 
22 

239 
240 
238 

90 
00 
70 

23 

24 
23 

99 

Actual,  995 

Standard  for  995 . 

A,  15;    B,  10 

2 

60 

12 
99 

60 

0 

75 

2 

67 

0 

48 

-2 

1 

30 

0 

It  is  not  to  be  expected  that  the  actual  material  and  labor 
costs  will  ever  be  exactly  equal  to  those  of  the  standard 
schedule.  Machines  will  break  down;  belts  will  slip;  mate- 
rial will  be  harder  or  easier  to  machine;  men  will  some- 
times fail  to  earn  their  bonus,  or  may  earn  extra  wages 
for  overtime;  more  material  will  prove  defective  or  will  be 
spoiled  in  one  lot  than  in  another;  the  spoiling  may  take 
place  in  the  first  operation  or  in  the  last;  men  may  some- 
times be  penalized  for  spoiling  material  and  sometimes  not, 
the  factory  in  the  latter  case  assuming  the  spoilage  as  one  of 
the  normal  risks  of  the  business.  In  the  imaginary  case 
above  described,  for  the  lot  of  1000  articles  1010  pieces  each 
of  A  and  B  were  furnished  by  the  stores,  of  these  15  of  A 
and  10  of  B  were  spoiled  in  process  so  that  only  995  articles 
could  be  completed,  5  pieces  of  B  being  left  over  and  put  in 
stores  for  the  next  lot. 

In  the  above  case  we  have  charged  the  warehouse  with 
$240  for  995  pieces.  Sticklers  for  absolute  accuracy  may 
find  fault  with  these  figures,  one  set  holding  that  the  charge  is 
too  low,  for  we  have  charged  the  standard  burden  $95.70 
for  1000  articles,  when  1010  pieces  each  of  A  and  B  were 
worked  upon,  and  the  direct  labor  cost  was  $2.20  more 
than  the  standard  and,  therefore,  the  burden  should  be 
greater,  more  machine  hours  than  the  standard  having 
been  employed  on  the  lot;  while  another  set  would  say 
that  we  have  inflated  the  inventory  by  charging  the 
standard  burden  for  1000  articles  when  only  995  were 
made,  and,  that  we  have  also  inflated  it  by  charging  to 
warehouse  the  cost  of  spoiled  work,  which  should  have  been 
charged  to  a  separate  account  and  not  to  the  cost  of  the 
product. 

These  are  matters  of  refinement  of  detail  which  each 
factory  should  settle  for  itself  in  its  "  accountants'  code." 
It  may  be  well  for  the  code  to  specify  that  the  machine- 
hour  burden  shall  include  an  allowance  of  say  2  per  cent  for  a 
normal  amount  of  spoiled  or  defective  work  and  that  when 


the  actual  spoilage  or  defective  material  is  less  than  this 
amount  no  account  need  be  taken  of  it  in  figuring  costs,  but 
that  when  it  is  in  excess  of  this  amount,  as  it  often  is  in 
engine  building,  when  a  cylinder  is  spoiled  in  boring  by  a 
shop  accident  or  on  account  of  a  flaw  in  the  casting,  the  loss 
due  to  spoilage  shall  be  taken  account  of  as  one  of  the  occa- 
sional risks  of  the  business,  charged  to  spoiled  work  account, 
closed  at  the  end  of  the  fiscal  period  into  Profit  and  Loss,  and 
not  be  included  in  the  inventory  valuation  of  the  product. 

We  must  be  careful  not  to  inflate  our  inventory  and, 
therefore,  exaggerate  our  book  profits,  and  possibly  also  to  in- 
crease our  selling  prices  to  such  an  extent  as   to  decrease  our 

sales,  and  on  the  other  hand 
not  to  underestimate  our  costs, 
which  may  lead  to  making  sell- 
ing prices  too  low,  thereby  less- 
ening profits.  The  middle 
course  seems  to  be  the  safest, 
and  this  may  be  had  by  speci- 
fying in  the  accounting  code 
that  the  machine-hour  rates 
include  an  allowance  of  2  per 
cent  (or  other  moderate  figure)  for  spoiled  work,  and  that  the 
standard  burden  to  be  charged  to  a  lot  is  that  belonging  to 
the  number  of  articles  ordered  and  expected  to  be  made  (1000 
in  the  case  described)  although  work  is  done  on  a  few  extra 
castings  ordered  with  the  expectation  of  some  loss  from 
spoilage  (10  extra  castings  in  this  case)  and  although  less 
than  the  expected  number  of  articles  (995  in  this  case)  are 
actually  finished.  One  advantage  of  this  method  is  that  it 
minimizes  the  clerical  abor. 

Advantage  of  the  Standard  Schedule.  The  saving  of 
labor  in  accounting  due  to  the  adoption  of  the  standard  bur- 
den per  unit  of  product  has  been  sufficiently  discussed  above, 
but  a  more  important  advantage  of  the  standard  schedule 
is  that  it  leads  to  obtaining  prompt  information  in  regard  to 
the  progress  of  work  through  the  factory  and,  in  regard  to 
excessive  cost  of  any  operation.  With  the  standard  opera- 
tion schedule  on  his  desk  for  each  kind  of  product  that  is 
going  through  the  shop,  the  superintendent  or  production 
clerk  can  compare  the  daily  count  of  pieces  made  in  each 
operation  with  the  standard,  instantly  note  any  serious 
variation  from  the  schedule  and  promptly  investigate  the 
cause  and  apply  the  remedy. 

Charge  Unabsorbed  Overhead  to  the  Sales 
Department 

I  recently  had  a  discussion  with  a  public  accountant  in  New 
York  who  claimed  that  overhead  should  only  be  charged  to  costs 
on  the  basis  of  normal  production,  and  that  when  orders  were 
insufficient  to  allow  of  normal  production  the  unabsorbed  expense 
should  be  charged  to  the  Sales  department,  because  they  didn't  get 
the  orders.  Some  works  managers  and  superintendents  would 
very  much  appreciate  such  relief.  For  the  purpose  of  intelligent 
comparison  of  costs  some  such  arrangement  should  work  satis- 
factorily, although  probably  in  the  steel  business  the  excess  should 
be  charged  through  some  special  account  against  the  income 
rather  than  to  the  Sales  department.— Gershom  Smith,  Eng. 
Mag.,  June,  1909. 


CHAPTER  IX 


DEPRECIATION.    INVENTORY  VALUATION.    APPRAISALS 


Method  of  Treating  Repairs  and  Depreciation  in  the 
Accounts.  Suppose  a  shop  is  fitted  with  new  machinery 
valued  at  $60,000.  It  is  estimated  that  the  possible  depre- 
ciation due  to  obsolescence  will  require  contributions  to 
an  insurance  fund  at  the  rate  of  4  per  cent  per  year,  or 
$2400  per  year,  or  $200  per  month;  that  the  depre- 
ciation due  to  wear  and  tear,  not  made  up  by  current 
repairs,  but  deteriorating  the  usefulness  of  the  machinery 
so  that  it  will  have  to  be  replaced  at  an  average  time  of  25 
years,  is  also  4  per  cent,  or  $200  per  month,  that  minor 
repairs,  such  as  renewal  of  bushings,  replacing  small  gears 
and  the  like  will  average  2  per  cent,  or  $100  per  month. 
Suppose  also  that  extraordinary  repairs,  due  to  accidents 
and  costing  from  $103  to  $2000  each,  are  apt  to  happen  at 
irregular  intervals,  the  total  cost  hi  different  years  ranging 
from  $300  to  $3000.  It  is  desired  to  distribute  and  absorb 
these  depreciations  and  repairs  into  the  monthly  records  of 
costs  of  the  several  classes  of  product  or  of  costs  of  work  hi 
the  several  departments.  If  the  normal  output  of  a  certain 
department  or  of  a  certain  class  of  goods  is  5000  pieces  per 
month,  costing  $5000,  or  $1  each,  and  in  one  month  there  is  a 
breakdown  costing  $1000  in  crease  in  the  repair  account  above 
the  usual  cost,  and  cutting  the  monthly  product  down  to  2500 
pieces,  the  apparent  cost  of  these  pieces,  if  the  cost  of  the 
extraordinary  repair  is  S1000  and  it  is  all  charged  against  the 
product  of  that  month,  may  be  raised  to  $1.50  each  or  up- 
wards. It  is  evident  that  a  cost  so  obtained  is  of  no  use  to 
the  management  for  any  purpose.  It  is  not  a  basis  for  the 
valuation  of  goods  in  the  warehouse  or  for  fixing  the  minimum 
price  at  which  goods  may  be  sold 

Example 


1st  Month 

2d  Month 

2d  Month 

Wrong 

Right 

Method 

Method 

Material 

$1000 

$  500 

$  500 

Direct  labor 

2000 

1000 

1000 

Indirect  labor  and  all  normal  expenses, 

repairs,  depreciation,  etc. 

2000 

1500 

1000 

Extraordinary  repairs 

none 

1000 

Total  cost 

5000 

4000 

2500 

No.  of  pieces  made 

5000 

2500 

2500 

Apparent  Cost  per  piece 

$1   00 

$1  .60 

$1   00 

The  warehouse  in  the  second  month  should  be  charged  only 
$2500  or  $1  each,  the  normal  cost  of  the  2500  pieces  made 


and  the  difference  between  the  total  and  the  normal  cosl 
($4000 -$2500  =$1500)  should  either  be  charged  to  Profit 
and  Loss  and  at  the  end  of  the  year,  with  other  profits  and 
losses,  be  balanced  into  surplus  or  capital  or  "  Company  " 
account,  or  else  be  charged  against  a  Reserve  for  Repairs 
account,  which  is  accumulated  for  the  purpose  of  taking  care 
of  such  extraordinary  repairs. 

Current  small  repairs  may  be  charged  directly  to  a  Repair 
Account  which  may  be  closed  monthly  into  Manufacturing 
Acct.  and  distributed  in  the  cost  records  of  departments  or 
classes  of  product.  Manufacturing  Acct.  should  also  be 
charged  monthly  with  one-twelfth  of  the  average  estimated 
yearly  cost  of  depreciation,  Reserve  for  Depreciation  being 
credited,  and  with  one-twelfth  of  the  estimated  average 
yearly  cost  for  extraordinary  repairs,  Reserve  for  Ex.  Repairs 
being  credited.  As  actual  expenditures  of  cash,  labor  or 
material  are  made  for  replacement  of  machines  that  have 
become  obsolete  or  worn  out,  or  for  extraordinary  repairs, 
these  Reserve  Accounts  are  charged  and  Cash,  Labor,  Mate- 
rial, or  Mfg.  Acct.  credited.  The  balance  of  the  Reserve 
accounts  at  the  end  of  the  year,  if  on  the  credit  side,  repre- 
sents a  fund  which  has  accumulated  and  n  ay  be  drawn  upon 
for  replacements  and  extraordinary  repairs  in  the  following 
years;  if  on  the  debit  side,  the  balance  represents  the  excess 
of  actual  expenditure  for  replacement  and  repairs  above  the 
total  of  the  monthly  credits  to  these  accounts.  This  debit 
balance  may  be  carried  over  into  the  next  year  and  may 
gradually  be  wiped  out  by  the  monthly  credits,  or  it  may  1  e 
transferred  to  Profit  and  Loss,  as  may  seem  best  to  the  man- 
agement. 

The  credit  balance  of  the  Reserve  Accounts  may  be  trans- 
ferred  to  the  credit  of  Equipment  Acct.  to  reduce  the  inven- 
tory value  of  the  equipment,  or  it  may  be  carried  forward  and 
dealt  with  at  some  future  time.  Thus,  if  at  the  end  of  a  few- 
years  after  the  opening  of  the  books  the  Dr.  balance  of 
Equipment  Acct.  is  $60,000  and  the  Cr.  balance  of  the 
Reserve  Accts.  is  $20,000,  this  may  mean  either  that  the 
equipment  is  worth  only  $40,000,  having  depreciated  $20,000 
in  value,  or  that  its  present  value  to  the  Company  as  a 
"  going  concern  "  is  the  full  $60,000,  but  that  there  is  a 
$20,000  fund  held  in  reserve  against  its  possible  rapid  depre- 
ciation at  some  time  in  the  near  future.  In  any  event  the 
meaning  of  the  $20,000  reserve  should  be  clearly  explained 
on  the  Ledger  for  the  information  of  an  auditor  or  examiner. 
If  it  should  appear  to  the  management  that  this  $20,000  fund 
is  greater  than  the  real  depreciation  plus  a  reasonable  reserve 


85 


86 


BOOKKEEPING  AND   COST  ACCOUNTING 


for  the  future,  then  part  of  it  may  be  credited  to  Profit  and 
Loss  or  Surplus  Account,  and  then  to  Dividend  Acct.,  paying 
it  back  to  the  stockholders,  but  this  is  a  matter  that  is  for  the 
Directors  and  not  the  Accountant  to  decide. 

In  making  estimates  of  costs  the  amount  to  be  added  for 
depreciation  of  machinery,  if  figured  as  a  percentage  of  the 
value  of  the  machinery,  should  be  based  on  its  original  value 
and  not  on  a  depreciated  value.  For  example,  if  the  machin- 
ery when  new  was  worth  $60,000  and  5  per  cent  per  annum 
or  S3000  is  deducted  from  its  inventory  value  for  depreciation, 
this  amount  being  charged  as  one  of  the  items  of  cost  of  the 
annual  product,  the  same  amount  should  be  charged  to  costs 
each  year,  although  the  inventory  value  may  have  been 
reduced  to  $40,000  or  less.  This  annual  charge  does  not  in 
fact  represent  the  actual  depreciation  each  year;  what  it 
does  represent  is  an  annual  contribution  to  a  fund  which  is 
to  be  used  eventually  for  such  repairs,  renewals  and  replace- 
ments as  will  bring  back  the  value  of  the  machinery  to  its 
original  amount. 

Depreciation.  From  notes  on  Business  Engineering,  by 
Alex.  C.  Humphreys. 

Definition.  Reduction  in  worth  caused  by  wear  and  tear 
through  use,  and  by  obsolescence  and  inadequacy. 

Repairs,  renewals  and  replacements  are  things  done  to  repair 
or  compensate  for  the  losses  occasioned  by  depreciation. 

Estimating  in  advance  of  the  facts  the  probable  and  possible 
future  depreciation  to  be  included  as  one  of  the  annual  items  of 
operating  cost  is  a  different  proposition  from  determining  the 
actual  depreciation  which  is  found  in  the  appraisal  of  a  plant  in 
operation.  The  first  is  known  as  theoretical,  the  second  as 
actual  depreciation. 

Repairs  and  replacements  of  certain  minor  parts  of  the  plants 
are  paid  for  out  of  current  income  and  should  be  charged  as  part 
of  the  expenses  of  the  year  unless  they  are  covered  by  an  inclusive 
yearly  charge  to  cover  all  repairs,  renewals  and  replacements. 

Replacements  of  parts  greater  in  value  may  be  charged  as  part 
of  the  expenses  of  the  year,  or  their  cost  may  be  distributed 
over  a  number  of  years,  or  they  may  be  included  in  an  inclusive 
yearly  charge  above  mentioned. 

The  theoretical  depreciation  due  to  obsolescence,  inadequacy, 
or  such  decay  as  will  in  time  necessitate  renewal,  is  one  of  the 
cost  or  expense  items  that  must  be  treated  as  an  accruing  liability. 
The  first  step  is  to  estimate  as  closely  as  we  can  the  annual  loss 
occasioned  by  this  depreciation.  To  estimate  the  probable 
life  of  each  part  of  the  plant  it  is  necessary  to  consider  the  class 
and  character  of  the  plant,  its  design  and  construction;  its 
capacity;  the  way  in  which  it  is  operated;  the  present  volume  of 
business  and  prospects  of  the  future;  whether  it  is  overworked 
or  not;  whether  it  is  kept  in  good  repair;  and  whether  the  cost 
of  repairs  is  charged  year  by  year  against  the  profits. 

To  assume  that  certain  kinds  of  apparatus  and  machines  can 
each  be  given  definite  life-expectations  without  regard  to  the 
special  conditions  involved  is  quite  indefensible.  What  is  the 
life  of  a  boiler?  What  is  the  life  of  an  engine?  Such  general 
questions  cannot  be  answered.  No  general  rules  can  be  estab- 
lished either  for  future  depreciation  or  for  making  estimates  of 
actual  depreciation  as  an  element  to  be  considered  in  the  appraisal 
of  present  value  of  plant. 

Having  examined  each  part  of  the  plant  and  having  developed  a 
table  of  life  expectations,  it  should  be  assumed  for  the  purpose  of 
this  estimate  that  at  the  end  of  each  life  period  covered  by  the 
table  the  parts  of  plant  will  have  to  be  renewed.  Many  things 
may  happen  to  change  the  estimate.  As  we  should  be  careful 
to  make  the  life  estimates  on  the  safe  side  we  may  hope  for  longer 
lives  than  those  assumed.     If  as  to  any  part  we  have  under- 


estimated the  element  of  inadequacy  and  we  find  the  plant 
wholly  or  in  part  inadequate  as  to  capacity  before  the  expiration 
of  the  assumed  life,  we,  at  least,  have  the  unexpected  higher  rate 
of  increase  in  sales  to  compensate  for  the  necessity  of  renewing 
the  plant  in  advance  of  our  estimate.  It  may  be  in  such  a  case 
that  the  investment  of  additional  capital  will  be  found  to  be 
fully  warranted. 

The  problem  of  estimating  accruing  depreciation  is  a  most 
difficult  one  'to  solve,  even  by  the  man  who,  by  training  and 
experience,  is  an  expert.  We  should  be  prepared  to  amend  our 
estimate  from  year  to  year  as  we  have  the  opportunities  to  check 
up  the  correctness  of  the  assumptions  upon  which  we  have 
based  our  estimate.  All  the  details  of  depreciation  estimates 
should  be  recorded  fully  and  exactly  so  that  as  conditions  change 
we,  or  those  who  follow  m.s,  may  always  be  able  to  compare  the 
results  of  the  estimates  with  the  facts  as  found.  With  every 
record,  especially  in  accounting,  the  statements  should  be  com- 
pletely self-explanatory. 

Depreciation  and  its  Relations  to  General  Expense. 
H.  M.  Norris,  Eng.  Mag.  XVI  (1898),  p.  812.  Mr.  Norris  sent 
a  list  of  questions  to  several  manufacturers  of  machine  tools 
asking  such  questions  as  "  How  would  you  figure  depreciation?" 
"How  do  you  regard  small  loose  tools,  as  drills,  reamers,  etc.?  " 
"Into  how  many  items  do  you  divide  General  Expense,  and 
what  are  they."  The  answers  showed  wide  difference  of  opin- 
ions on  all  the  questions;  for  example,  one  manufacturer  said 
he  carried  drawings,  wood  and  iron  patterns,  jigs  and  fixtures 
on  his  books  at  cost,  while  another  charged  them  to  expense  and 
took  no  further  account  of  them.  Mr.  Norris  says  of  these 
things : 

Drawings  are  not  merchandise,  they  are  merely  means  to  an 
end,  a  necessary  evil  in  production.  Standard  drawings  are 
chargeable  to  capital,  not  as  assets  from  which  a  given  per- 
centage can  be  written  off  annually,  but  as  assets  ^\hose  real 
value  can  only  be  approximated.  Only  those  drawings  which 
are  in  use  should  be  valued  in  the  assets.  Patterns  when  seldom 
used  have  little  value.  Patterns  should  be  broken  up  as  fire- 
wood as  soon  as  they  are  no  longer  needed.  Metal  patterns  in 
regular  use  remain  of  fixed  value,  repairs  being  charged  to  general 
expenses. 

Two  of  the  replies  were  as  follows:  "  We  do  not  feel  like 
going  into  all  the  details  of  our  private  business  in  the  way 
you  have  suggested."  "  We  feel  that  this  is  in  a  measure 
private  information  that  we  do  not  care  to  have  disseminated 
generally."  Mr.  Norris  thus  comments  on  these  replies: 
"  A  nation's  progress  is  dependent  upon  the  distribution  of 
knowledge,  and  knowledge  withheld  is  progress  retarded. 
This  is  equally  true  of  private  enterprises,  and  I  think  it  will 
be  admitted  that  one  of  the  chief  essentials  of  progress,  espe- 
cially in  the  mechanic  arts  is  unselfishness — a  willingness  to 
exchange  ideas,  a  broad  and  liberal  policy  fostered  by  an 
esprit  de  corps  which  insures  its  own  reward." 

Four  Methods  of  Calculating  Depreciation.*  If  depreciation 
is  calculated  on  too  restricted  a  basis  it  may  easily  be  found 
that  money  has  been  paid  away  in  profits  which  ought  to  have 
been  retained  for  the  future.  There  are  still  divergent  ideas  as 
to  the  way  in  which  it  should  be  charged,  quite  apart  from  the 
percentage.  The  method  matters  little  so  long  as  enough  is 
set  aside. 

There  are  four  recognized  methods  of  charging  depreciation. 
1.  The  reduced  balance  method;  2.  The  straight-line  method; 
3.  The  annuity  method;  4.  The  sinking-fund  method. 

♦Condensed  from  an  editorial  in  Engineering  (London)  Jan.  19, 
1917,  reviewing  a  paper  read  before  the  Institution  of  Civil  Engi- 
neers, by  F.  Gill  and  W.  W.  Cook. 


DEPRECIATION.     INVENTORY   VALUATION.     APPRAISALS 


87 


Taking  a  hypothetical  machine,  costing  S1000  (£100  in  the 
original  article)  with  a  physical  life  of  25  years  and  a  scrap  value 
of  $20,  and  an  economical  life  of  19  years  with  a  scrap  value  of 
$130,  assume  that  the  $1000  will  provide  $50  annually  for  the 
shareholders  and  that  enough  should  be  written  off  to  provide 
J870  at  the  end  of  19  years. 

(1)  Reduced  balance  method. 


Depreciation  of  $10,000  in  Twenty  Years  by  Three 
Methods 


In  successive  years 

The  capital  value  becomes 

The  depreciation  fund  becomes 


0 

1 

2 

3 

1000 

898  2 

806  7 

724  6 

0 

101   8 

193.3 

275.4 

19 
130 

870 


The  value  of  the  machine  falls  very  rapidly  at  first  and  very 
slowly  toward  the  end,  821.90  the  last  year.  This  does  not 
agree  with  the  facts.  A  machine  properly  cared  for  suffers  no 
damage  the  first  three  or  four  years. 

(2)  In  the  straight-line  *  method  $50  is  required  annually  for 
interest  and  $45. SO  for  the  depreciation  fund,  the  latter  totaling 
$879.20  in  19  years  without  interest.  The  $45.80  is  invested 
either  in  a  special  fund  or  in  the  business.  The  interest  of  the 
fund,  however,  goes  into  the  general  account  and  the  dividend  is 
swelled  by  this  interest.  In  the  last  year  the  interest  on  the  fund 
amounts  to  $41.20.  If  the  interest  be  added  to  the  deprecia- 
tion fund  year  by  year  then  a  depreciation  of  $28.50  per  year 
would  be  sufficient  to  furnish  $870  in  19  years.  In  the  case  of  a 
plant  like  a  telephone  pole  (which  carries  its  wires  with  uniform 
efficiency  until  it  is  blown  down  or  condemned  by  the  Inspector), 
it  is  clear  that  the  dividends  are,  by  the  straight-line  method, 
being  reduced  in  the  early  years  and  augmented  in  the  later 
years,  while  the  profits  are  uniform.  Clearly  this  is  not  good 
bookkeeping. 

(3)  The  annuity  method.  Each  year  a  part  of  the  capital  is 
repaid  and  a  return  is  paid  on  the  capital  outstanding.  The 
total  charge  is  uniform  at  $78.50  for  interest  and  depreciation 
and  is  made  up  of  a  decreasing  return  component  and  an  increas- 
ing depreciation  component.  In  19  years  the  amount  available 
for  depreciation  rises  from  $28.50  to  $68.60.  The  capital  value 
is  written  down  each  year  by  the  amount  of  the  depreciation  and 
consequently  the  amount  required  for  interest  grows  less  and  less. 
At  the  same  time  the  interest  earned  by  the  depreciation  fund  is 
paid  into  the  general  account,  so  that  the  shareholder  still  gets 
his  $50  yearly  partly  by  earnings  from  the  depreciated  machine 
and  partly  from  the  fund.  By  this  plan  the  plant  is  written 
down  slowly  at  first  and  more  quickly  toward  the  last,  which 
certainly  corresponds  with  the  condition  of  moving  machinery. 

(4)  The  sinking-fund  method.  The  total  annual  charge  is 
$78.50,  made  up  of  uniform  charges  each  year,  both  for  interest 
and  depreciation  The  interest  earned  by  the  fund  is  added  to 
it  annually,  while  the  value  of  the  plant  is  not  written  down,  but 
is  credited  with  earning  5  per  cent  all  the  period.  This  is  exactly 
the  case  of  the  telephone  pole.  The  amount  set  aside  in  methods 
3  and  4  is  identical  and  the  result  is  identical  at  the  end  of  19 
years.  The  difference  is  that  in  one  case  the  value  of  the  plant  is 
supposed  to  decrease  annually  and  in  the  other  it  remains  con- 
stant.    The  difference  is  one  of  bookkeeping  mainly: 

The  manufacturer  who  adopts  method  (1)  and  accumulates 
money  fast  in  the  early  years  is  in  the  safer  position,  while  the 
one  following  the  straight-line  method  (2)  is  not  dependent  on  the 
interest  of  the  fund  to  square  his  accounts.  A  big  reserve  fund 
is  a  most  useful  asset,  but  like  many  other  desirable  things  it  is 
difficult  of  attainment,  especially  by  limited  companies,  whose 
shareholders  generally  think  more  of  present  dividends  than  of 
future  safety. 

*  This  refers  to  a  downwardly  inclined  straight  line  on  a 
plotted  diagram  representing  the  uniform  annual  reduction  in 
value.  In  other  methods  the  reduction  of  value  is  shown  by  a 
curve. 


Straight  Line 

Depreciation 

Depreciation  at  10%  on 

AT  5% 

Diminished  Yalces 

Year 

Total 

Remaining 

Total 

li<  uniining 

Depreciation 

Value 

Depreciation 

Value 

1 

$500 

$9500 

$1000  00 

$9000  00 

2 

1000 

9000 

1900  00 

8100  00 

3 

1500 

8500 

2810  00 

7290  00 

4 

2000 

8000 

3439  00 

6561   00 

5 

2500 

7500 

4095    10 

5904  90 

6 

3000 

7000 

4685  59 

5314  41 

7 

3500 

6500 

5217  03 

4782  97 

8 

4000 

6000 

5695  33 

4304  67 

9 

4500 

5500 

6125.80 

3874  20 

10 

5000 

5000 

6513.21 

3486  79 

11 

5500 

4500 

6861    89 

3138   II 

12 

6000 

4000 

7175.70 

2824  30 

13 

6500 

3500 

7458. 14 

2541   86 

14 

7000 

3000 

7712.33 

2287  67 

15 

7500 

2500 

7941.09 

2058  91 

16 

8000 

2000 

8146.98 

1853  02 

17 

8500 

1500 

8332  28 

1667.72 

18 

9000 

1000 

8499  06 

1500.94 

19 

9500 

500 

8649   15 

1350  85 

20 

10000 

0 

8784  23 

1215.77 

Sinking  Fund  Method 
Annual  Payments  or  $302  43  for  20  Years.     5%  Compound  Interest* 


End  of 

Principal 

Yearly 

Accumulated 

Total  of 

Remaining 

Year 

Interest 

Interest 

Fund 

Value 

1 

$302 . 43 

0 

0 

$302.43 

$9697  57 

2 

604  86 

15.12 

15.12 

619.98 

9380  02 

3 

907  29 

31.00 

46.  12 

953   41 

9046  59 

4 

1209   72 

47.67 

93   79 

1 403   5 1 

8696  49 

5 

1512    15 

65.18 

158  97 

1671.12 

8328  88 

6 

1814   58 

83   56 

242  53 

2057    11 

7942.89 

7 

2117  01 

102.85 

345.38 

2462  39 

7537.61 

8 

2419.44 

123.12 

468.50 

2887  94 

7 1 1 2  06 

9 

2721.87 

144.40 

612.90 

3334.77 

6665.23 

10 

3024 . 30 

166.74 

779  64 

3803  94 

6196.06 

II 

3326  73 

190.20 

969.84 

4296  57 

5803 . 43 

12 

3629   16 

214.83 

1184  67 

4813.83 

5186.17 

13 

3931   59 

240.69 

1425   36 

5356.95 

4643.05 

14 

4234  02 

267.85 

1 693   2 1 

5927.23 

4072.77 

15 

4536  45 

296.36 

1989.57 

6526.02 

3473.98 

16 

4838.88 

326.30 

2315.87 

7154.75 

2845.25 

17 

5141 .31 

357.74 

2673.61 

7814  92 

2185.08 

18 

5443.74 

390.75 

3064 . 36 

8508    10 

1491.90 

19 

5746. 17 

425.40 

3489  76 

9235  93 

764.07 

20 

6048.60 

461.80 

3951.56 

10000. 16 

0 

$395 1 . 96 

*  The  formula  by  which  the  annual  payment  is  found  is  P=- 


(l+0"-l 

in  which  i  =interest  rate  expressed  as  a  decimal  =.05,  n  =number  of  years, 
P=payment  made  at  the  end  of  each  year.  The  amount  of  the  annual 
payment  may  also  be  found  in  annuity  tables.  See  the  "  Mechanical  Engi- 
neer's Pocket-book,"  page  16. 

Valuation  of  Machinery.  "  If  the  machines  are  appro- 
priate for  their  purpose,"  says  Mr.  Matheson,  "  then  their 
value  will  be  arrived  at  by  adding  to  their  original  cost  the 
expense  of  installation,  and  deducting  an  amount  for  depre- 
ciation proportioned  to  their  age  and  wear,  and  a  further 
amount  for  any  actual  repairs  they  may  require." 


88 


BOOKKEEPING   AND   COST  ACCOUNTING 


Mr.  Matheson  says: 

Where  the  production  is  stimulated  by  a  system  of  piece-work, 
the  deterioration  of  the  plant  is  likely  to  be  more  rapid  than  in  a 
factory  where  the  workmen  are  paid  according  to  time  only. 
In  very  busy  times,  when  there  is  a  pressing  demand  for  the 
products,  and  profits  are  large,  it  may  be  expedient  and  remuner- 
ative to  work  long  hours,  and  to  force  the  plant  and  machinery 
to  their  utmost  power,  even  at  the  risk  of  a  breakdown,  so  as  to 
take  full  advantage  of  the  transient  high  prices;  but  in  such  a 
case  a  corresponding  rate  would  have  to  be  written  off  for  depre- 
ciation. 

Mr.  Oberlin  Smith,  President  of  the  Ferracute  Machine 
Co.,  Bridgeton,  N.  J.,  says:* 

The  grand  principle  which  lies  at  the  root  of  correct  valuation, 
and  which  should  govern  the  appraiser  throughout  all  his  work, 
is  that  any  article  is  worth,  not  what  it  did  cost,  but  what  it  would 
cost  to  replace  it  to-day,  providing  it  is  so  useful  that  it  would 
be  desirable  to  so  replace  it,  were  it  destroyed.  Thus,  if  a  shop 
has  a  lot  of  machine  tools  which  are  built  so  near  to  the  best 
modern  practice  that  it  would  be  desirable  to  duplicate  them 
were  they  destroyed,  they  are  worth  exactly  what  said  dupli- 
cates would  now  cost,  delivered  and  set  up  in  the  shop,  less  the 
depreciation  due  to  the  wear  and  tear. 

The  depreciation  of  special  tools  for  wear  and  tear  need  be 
but  very  little,  as,  if  they  serve  their  purpose  at  all,  they  must  be 
kept  in  such  repair  as  to  serve  it  perfectly. 

In  practical  dealings  with  this  question,  it  seems  to  me  that 
the  best  course  is  to  give  all  special  tools  an  inventory  rating  at 
their  apparent  value,  and  then  to  lay  aside  a  portion  of  the  extra 
profits  which  these  tools  have  earned  by  their  special  usefulness, 
in  the  general  reserve  fund,  or  "  Surplus,"  of  the  concern.  They 
may  thus  be  drawn  upon,  should  any  too  sudden  collapse  in 
values  take  place. 


In  a  recent  paper  (Jour.  A.S.M.E.,  Jan.,  1917),  Mr. 
Smith  said: 

Some  people  depreciated  a  set  of  machine  tools  10  per  cent 
each  year  and  that  soon  made  them  worth  one-half  or  one-quarter 
of  their  original  value,  when  they  were  as  good  as  ever.  His 
rule  had  been  to  allow  a  small  amount  for  depreciation  each 
year  and  keep  the  tools  in  good  order.  If  a  tool  was  run  down 
and  needed  repairs,  or  an  additional  part  was  applied  to  it  and 
perhaps  50  per  cent  of  the  original  value  spent  on  it,  then  it 
was  worth  more  at  the  end  of  the  year  when  repaired  and  it 
was  not  right  to  keep  depreciating  it  right  along.  It  was  worth 
as  much  as  when  new. 

In  1916  the  author  saw  in  operation  in  a  factory  in  Phil- 
adelphia a  heavy  punching  press  that  had  teen  bought  from 
Mr.  Smith's  company  in  1872.  It  had  been  running  regularly 
for  44  years,  always  on  the  same  kind  of  work,  and  was  to  all 
appearances  as  good  as  new.  It,  no  doubt,  had  some  repairs 
made  on  it  from  time  to  time,  such  as  re-bushing  or  rebab- 
bitting  of  its  shaft  bearings,  and  replacing  some  worn-out 
slides  and  gear  wheels.  A  sinking  fund  reserve  with  an  annual 
payment  of  1  per  cent  of  the  original  cost  would  probably 
have  covered  all  of  the  repairs  and  depreciation. 

The  amount  of  interest  and  amortization  to  be  charged  in 
any  well-equipped  power  plant  is  greatly  a  matter  of  financial 
policy  and  not  so  much  a  question  of  the  actual  life  of  the  plant. 
In  our  age  of  technical  and  industrial  progress,  plants  lose  their 
usefulness  through  obsolescence  rather  than  actual  deterioration, 
and  the  management  with  foresight  favors  high  amortization 
charges,  i.e.,  short  life,  to  provide  a  sinking  fund  for  the  replace- 
ment of  obsolete  with  new  and  efficient  machinery. — H.  Haas, 
Bull.  Am.  Inst.  Mining  Engrs.,  May,  1917,  p.  867. 


The  Effects 

of  Depreciation  at  Different  Rates 

for  Terms  of  Years  l 

Years 

1% 

2% 

3% 

4% 

507 

J  /o 

6% 

7%. 

8% 

10% 

12% 

15% 

20% 

, 

990,000 

.  980,000 

.970,000 

.  960,000 

.  950,000 

.940,000 

.930,000 

.  920,000 

.900,000 

.880.000 

.  850,000 

800,000 

2 

980,100 

.960,400 

.940,900 

.921,600 

.902,500 

.883,600 

864,900 

.846,400 

.810,000 

774,400 

.722,500 

640,000 

3 

.970,299 

.941,192 

.912,673 

.884,736 

.857,375 

.830,584 

.804,357 

.778,688 

.  729,000 

681,472 

.614,125 

.512,000 

4 

.960.596 

.922,368 

.885,292 

.849,346 

.814,506 

.780,749 

.748,052 

.716,392 

.656,100 

599,695 

.  522,006 

.409,600 

5 

.  950,990 

.903,921 

.858,734 

.815,372 

773,781 

.733,904 

.695,688 

.659,081 

.590,490 

.527,731 

.443,705 

327,680 

6 

.941,480 

.885,843 

.832,972 

.782,757 

.735,092 

.689,870 

646,990 

606.355 

.531,441 

464,404 

.377,149 

262,144 

7 

.932,065 

868,126 

.807,982 

.751,477 

.698,337 

.648,478 

.601.700 

.557.846 

.478.297 

.408,675 

.320,577 

209,715 

8 

.922,745 

.850,763 

.783,743 

.721,389 

.663,420 

.609,569 

.559,581 

.513.218 

.430,467 

359,634 

.272.490 

.  167,772 

9 

.913,517 

.833,748 

.760,231 

.692,534 

.630,249 

.572.995 

.520,411 

.472,161 

.387,420 

.316,478 

231,617 

.  134,218 

10 

.904,382 

.817,073 

.737,424 

.664.832 

.598,737 

.538,616 

.483,982 

.434,388 

.348,678 

.278,500 

.  196,874 

.107,374 

II 

.895,338 

.800,732 

715,301 

.638,239 

.  568.800 

.506,299 

.450,103 

.399,637 

.313,811 

.245,080 

167,343 

085,899 

12 

.886,385 

.784,717 

.693,842 

.612,709 

.540,360 

.475,921 

.418,596 

.367,666 

.282,429 

215,671 

.  142,242 

.068,720 

13 

.877,521 

.  769,023 

.673,026 

.588,201 

.513.342 

.447,366 

.389,294 

.338,253 

.254,186 

.  189,790 

.  120,905 

054,976 

14 

868,746 

.753,643 

.652,836 

.564,673 

.487,675 

.420,524 

.362,043 

. 3 1 1 , 1  92 

.228,768 

.  167,015 

.  102,770 

.043,981 

15 

.860,058 

.738,570 

.633,250 

.542,086 

.463,291 

.395,292 

336,700 

.286,297 

.205.891 

.  146,973 

.087,354 

.035,184 

16 

.851.458 

.723,798 

.614,253 

.520.402 

.440,127 

.371,575 

.313,131 

.263,393 

.  185.302 

.129,336 

.074,251 

.  028, 1 48 

17 

.842,943 

.709,323 

.595,825 

.499,586 

.418,121 

.349,281 

.291,212 

.242,322 

.  166,772 

.  113,816 

.063,113 

.022,518 

18 

.834,514 

.695,136 

.577,950 

.479.603 

.397,214 

.328.324 

270,827 

.222,936 

.  150,095 

.  100,158 

053.646 

.018,014 

19 

.826,169 

.681,233 

.560,612 

.460,419 

.377,354 

.308,624 

251,869 

.205,101 

.135,085 

.088,139 

.045,599 

.014,412 

20 

,817,907 

.667,609 

.543,794 

.442,002 

.358,486 

.290,107 

.234,238 

.  188,693 

.121,577 

.077,562 

.038,760 

011,529 

21 

.809,728 

.654,257 

.527,480 

.424,322 

.340,562 

.272,701 

.217,842 

.173,597 

.  109,419 

.068,255 

.032,946 

.CC9.223 

22 

.801,631 

.641,171 

.511,655 

.407,349 

.323,533 

.256,338 

.201.593 

.159,709 

.098,477 

.  060,064 

.028.C04 

.007.379 

23 

.793,615 

.628.348 

.496,306 

.391,055 

.307,357 

.240,958 

.  188,411 

.  146,933 

.088,629 

.052,856 

.023,803 

.005,903 

24 

.785,679 

.615,781 

.481.416 

.375,413 

.291,989 

.226,501 

.  175,222 

.135,178 

.079,766 

.046,513 

.020,233 

004,722 

25 

.777.822 

.603,466 

.466,974 

.360,396 

.277,390 

.212,911 

.  162,957 

.  124,364 

.071,790 

.040,931 

.017,198 

.003.778 

26 

.770,044 

.591,396 

.452,965 

.345,980 

.263.520 

.200,136 

.  151,550 

.114,415 

.064,61  1 

.036,019 

.014,618 

.003,022 

27 

.762,343 

.579.568 

.439,376 

.332,141 

.250,344 

.  188,128 

.  140,941 

.105,261 

.058,150 

.031,697 

.012,425 

.002,418 

28 

.754,720 

.567,977 

.426,194 

318,855 

.2^7,827 

.  176,840 

.131,075 

.  096,840 

.052,335 

.027,893 

.010,562 

.001,934 

29 

.747,173 

.556,618 

.413,408 

306,101 

.225.935 

.  166,230 

.  121,900 

.  089,093 

.047,101 

.024,546 

.008,977 

.001,547 

30 

.739.701 

.545,485 

401,006 

293,857 

.214,639 

156,256 

.113,367 

081,966 

042.391 

.021,601 

007,631 

.001,238 

1  H.  M.  Norris,  Engineering  Magazine,  Mar.,   1899. 
*  "  Inventory  Valuation  of  Machinery  Plant."     Trans.  A.  S.  M.  E.,  Vol.  vii,  p.  433. 


DEPRECIATION.     INVENTORY  VALUATION.    APPRAISALS 


89 


Charge  all  non-perishable  tools  of  an  unusual  and  irregular 
nature  to  special  plant  at  cost.  Let  their  value  remain  at  this 
figure  until  the  saving  in  cost  on  the  future  probable  output  of 
said  tools  falls  below  their  cost.  Then  depreciate  dollar  for 
dollar,  in  accordance  with  the  shrinkage  that  occurs  from  time 
to  time  in  the  total  amount  of  saving  that  will  be  effected  during 
the  remaining  term  of  their  usefulness. — H.  M.  Norris. 

The    Relation    between    Perpetual-inventory   Value   and 
Appraisal  Value  * 

"What  is  your  plant  worth?  You  should  know — exactly.  You 
should  know  for  insurance  purposes,  for  financial  purposes,  for 
every  purpose  that  has  anything  to  do  with  the  safe  conduct  of 
your  business.  You  should  know — must  know — before  you  can 
calculate  costs,  overhead,  profits;  before  you  issue  securities, 
make  loans,  place  insurance.  Your  annual  statement  has  a 
hollow  foundation  if  its  estimate  of  your  assets  as  a  going  con- 
cern is  based  on  the  accountant's  guess — a  guess  that  has  no 
better  foundation  than  an  estimate  of  costs  at  some  past  period, 
from  which  certain  arbitrary  percentages  have  been  written  off 
each  year." 

This  statement,  taken  from  a  publication  of  one  of  the  appraisal 
companies,  can  be  accepted  as  sound  without  committing  our- 
selves to  the  conclusion  which  the  appraisal  company  is  anxious 
to  establish:  that  the  real  worth  of  a  plant  for  all  purposes  can  be 
established  only  through  the  work  of  professional  appraisers. 

Most  plants  grow  from  small  beginnings,  and  during  their 
early  life  expand  as  the  needs  dictate.  The  organization  is  nec- 
essarily small,  because  the  most  rigid  kind  of  economy  must  be 
practiced,  and  original  costs  and  the  costs  of  additions  are  fre- 
quently so  completely  submerged  in  the  total  assets  that  no  safe 
records  of  these  costs  can  be  established.  The  annual  statements 
of  plants  so  conducted  have  indeed  a  hollow  foundation,  for  not 
only  their  assets  but  usually  their  profits  are  based  on  the  account- 
ants' guesses.  Industries  so  managed  need  the  assistance  of  a 
competent  appraisal  company  to  inform  them  of  the  value  of 
their  assets,  as  a  basis  for  embarking  on  a  sounder  and  safer 
system  of  accounting  methods. 

Appraisals  are  also  valuable  in  establishing  comparative 
values  of  plants  that  are  about  to  merge,  or  in  serving  as  a  basis 
of  a  scheme  of  financing.  But  the  claims  that  an  appraisal  is 
necessary  for  figuring  overhead  costs  and  the  selling  price  and 
profit  of  manufactured  articles,  are,  to  say  the  least,  sadly  over- 
drawn. 

Need  for  Determining  a  Proper  Rate  of  Depreciation.  Few 
owners  are  astute  enough  to  foresee  their  needs  for  ten  years 
to  come,  and  fewer  still  have  the  means  to  build  or  expand  along 
the  lines  that  will  give  ample  opportunity  for  future  business 
growth.  It  is  safer  by  far,  therefore,  to  provide  proper  sinking 
funds  through  an  ample  rate  of  depreciation,  so  that  when  build- 
ings that  have  outlived  their  usefulness  require  reconstruction, 
funds  have  been  provided  out  of  profits  for  rebuilding  along  more 
modern  lines. 

Machine  tools  have  changed  very  considerably  as  a  result  of 
the  development  of  the  Taylor-White  and  other  high-speed  steels, 
and  companies  that  followed  appraisal  methods  of  depreciation 
find  themselves  with  obsolete  equipment  and  no  funds  to  replace 
it  with  modern  equipment. 

Patterns  and  small-tool  equipment  often  have  but  temporary 
value  and  should  disappear  wholly  from  the  inventory  when  they 
have  served  their  purpose,  yet  these  two  items  are  fertile  sources 
for  inflation  of  values  through  appraisals. 

What  the  management  of  an  industry  is  chiefly  concerned  in, 
is  to  provide  a  fund  through  a  proper  scale  of  depreciation  which 
will  reimburse  it  for  the  difference  between  the  cost  price  of  a 
piece  of  equipment  and  its  fair  cash  selling  price  when  sold  either 

*  Extracts  from  a  paper  by  Charles  Piez.  Chicago,  111.,  Trans. 
A.S.M.B.,  1916. 


because  it  is  ready  for  the  scrap  heap  or  because  some  newer 
form  or  method  has  made  a  change  desirable.  This  difference 
is  properly  a  part  of  the  cost  of  the  product,  but  becomes  so 
only  by  charging  depreciation  against  the  expenses  of  opera- 
tion. 

Depreciation  not  Properly  Determined  by  Appraisal  ('uiiijinnu 
Has  any  appraisal  company  ever  investigated  the  subject  of 
depreciation  from  the  operating  standpoint  and  recommended  a 
schedule  of  depreciation  for  adoption?  Has  any  appraisal  com- 
pany ever  advocated  that  depreciation  be  distributed  as  an  oper- 
ating expense  against  the  product?  Can  any  appraisal  com- 
pany claim  with  any  justice  that  it  can  determine  proper  rates 
of  depreciation  without  close  contact  with  and  full  knowledge 
of  the  operating  conditions  and  operating  needs  of  an  industry? 
The  primary  business  of  an  appraisal  company  is  to  determine 
an  authoritative  replacement  value,  and  its  entire  organization 
is  trained  for  this  purpose.  But  when  the  appraisers  entei  the 
field  of  depreciation,  operating  values  and  costs,  they  are  doing 
their  clients  positive  harm  and  are  leading  them  straight  to  the 
shoals  of  financial  disaster;  for  appraisals  have  a  distinct  upward 
tendency,  and  the  increases  in  value  which  they  show  as  the 
result  of  wholly  extraneous  conditions  have  the  effect  of  lulling 
the  manufacturer  into  a  wrong  sense  of  financial  security. 

All  of  those  with  whom  I  have  been  associated  in  business 
for  the  last  quarter  of  a  century  have  been  radicals  in  their 
methods  of  depreciation,  but  with  all  of  this  strong  leaning 
toward  what  might  be  considered  an  excessive  write-off,  we  fre- 
quently find  when  we  are  ready  to  discard  a  tool  or  reconstruct  a 
building,  that  a  substantial  additional  amount  must  be  charged 
off  to  profit  and  loss. 

The  great  majority  of  industries  charge  off  too  little  rather 
than  too  much,  and  the  appraisal  companies,  if  anything,  are 
assisting,  unconsciously,  of  course,  in  increasing  this  unprofitable 
and  oft  times  disastrous  habit. 

I  had  occasion  recently  to  go  over  the  financial  statement  of  a 
manufacturing  plant  which  had  delegated  the  important  function 
of  depreciation  to  an  appraisal  company.  The  amount  charged 
off  annually  was  less  than  one-half  of  the  proper  amount,  this 
being  due,  the  owner  said,  to  the  constant  and  considerable 
advance  in  the  replacement  value  of  the  property.  Here  was  a 
typical  case  of  reducing  the  operating  burden  of  a  plant  by 
crediting  it  with  a  wholly  speculative  and  unrealizable  increase 
in  property  value.  In  this  case  the  appraisal  company  specified 
the  amount  to  be  depreciated  each  year,  and  was,  therefore, 
responsible  for  this  wholly  unsound  and  unscientific  procedure. 
The  owner  is  about  to  build  a  new  plant,  and  I  take  no  chances 
in  prophesying  that  he  has  some  bitter  disappointments  awaiting 
him  in  unforseen  shrinkages  of  assets  when  he  abandons  the  old 
plant. 

The  problem  of  determining  an  adequate  scale  of  deprecia- 
tion is  by  no  means  a  simple  one,  and  it  goes  hand  in  hand  with 
the  problem  of  distributing  depreciation  against  the  cost  of  the 
product.  It  is  astonishing  to  find  how  widely  the  practice  among 
different  manufacturers  in  the  same  line  varies. 

Proposed  Standard  Rates  of  Depreciation .  The  manufacturers 
of  conveyors  and  elevators  have  made  an  effort  to  agree  on  some 
standardized  form  of  accounting  procedure.  The  preliminarj 
meeting  of  the  manufacturers  and  their  accountants  disclosed 
the  fact  that,  out  of  nine  manufacturers,  two  disregarded  the 
question  of  depreciation  entirely,  five  charged  off  depreciation 
to  profit  and  loss,  and  only  two  charged  depreciation  against 
operating  expenses,  making  it  thereby  a  component  pari  of  the 
cost,  The  rates  of  depreciation  varied  widely,  and  the  first 
steps  taken  by  the  conference  consisted  in  determining  a  standard 
schedule  of  rates  of  depreciation.  The  rates  are  but  com- 
promises growing  out  of  the  judgment  and  experience  of  the 
individual  members  of  the  conveyor  manufacturers'  conference, 
but  their  correctness  can  later  be  verified  by  matching  the  per- 
petual inventory  values  which  these  rates  will  establish,  against 
the  actual  experience  of  loss  in  cash  value  when  equipment  or 
buildings  are  discarded. 


90 


BOOKKEEPING  AND   COST  ACCOUNTING 


Standard  Depreciation  Rates  Adopted  by  Manufacturers'  Cost  Con- 
ference, Feb.  25,  1916 


Per  Cent 

Per  Cent 

on 

on  Cost 

Reducing 
Balance 

Buildings  and  Accessories: 

Reinforced  concrete  or  steel  and  tile 

2 

3 

Brick  and  steel  with   non-combustible  roof  and 

concrete  floors 

2.5 

4 

Brick,  steel  and  wood 

3 

5 

Brick  and  wood 

3 

5 

Steel   frame,    wooden   roof   and   corrugated-iron 

walla 

3.5 

7 

Steel  frame,  non-combustible  roof  and  corrugated 

iron  walls 

3 

6 

Concrete  block,  with  wooden  roofs  and  floors 

3.5 

8 

All-wood  structures,  well  built  (20  years) 

4.5 

10 

All-wood  structures,  cheap  (20  years) 

5 

12 

Sprinkler  system  (20  years) 

4 

7.5 

Heating  and  ventilating  system  (20  years) 

4 

7.5 

Water  and  sewer  piping  and  sanitary   fixtures 

(where  separate) 

4 

7.5 

Tanks  and  reservoirs,  steel 

4.5 

10 

Tanks  and  reservoirs,  wood  (10  years) 

9 

20 

Steel  shelving,  lockers,  etc. 

5 

12 

Machinery  and  Large  Equipment: 

Boilers,  pumps;  feedwater  heaters  and  air  com- 

pressors 

6 

15 

Power  piping 

6 

15 

Switchboards,  main  wiring  and  conduit 

6 

15 

Engines  and  dynamos 

5 

10 

Machinery,    motors,    machine    tools,    traveling 

cranes,  etc. 

4.5 

10 

Punch  presses,  bending  rolls,  power  shears  and 

drop  hammers 

4.5 

10 

Miscellaneous  Real  Estate  Improvements: 

Pavements,   sidewalks,   fences,   retaining   walls, 

roadways,     tracks,     yard    drainage,    general 

conduits,  tunnels,  vaults,  etc. 

4.5 

10 

Cupolas,  converters,  melting  furnaces  and  acces- 

sories 

5 

10 

Annealing  and  heating  furnncs,  ovens,  forges,  etc. 

5 

10 

Motor  truck* 

20 

60 

Storage  battery  locomotives  (battery  renewals  to 

repairs) 

10 

30 

Horses  and  wagons 

12 

35 

Shafting,  pulleys,  hangers  and  belting  * 

50 

Machine  tool  accessories — Boring  bars,  drivers, 

key  seating  broaches,  etc. 

50 

(All  renewals  to  Repairs) 

Small  Tools: 

For  machines,  net  additions 

50 

Hand  tools,  net  additions 

50 

Punches  and  Dies  (Standard),  net  additions 

50 

Chills,  Iron  and  Steel  Flasks  and  Accessories, 

net  additions 

50 

Fixtures.  Furniture  and  Miscellaneous  Equip- 

ment: 

1    Mechanical  appliances,  net  additions 

60 

2  Departmental  wiring  and  electric  fixtures,  net 

additions 

60 

3   Miscellaneous  items  (wood),  net  additions 

70 

Patterns  (Standard): 

Metal,  net  additions 

75 

Wood,  net  additions 

100 

All  patterns  required  for  a  particular  order  or 

contract  to  be  charged  to  the  job. 

5 

5 

Drawings: 

All  new  standard  drawings  to  be  charged  to  ex- 

pense. 

All  drawings  required  for  a  particular    order  or 

contract  to  be  charged  to  the  job. 

In  a  letter  to  the  author,  explaining  the  high  rates  of 
depreciation  for  small  tools,  fixtures,  etc.  Mr.  Piez  writes: 
"  Only  the  items  that  are  actively  used  in  the  fabrication  of 
standard  product  are  inventoried  in  this  way,  all  other  items 
being  charged  off  wholly  to  expense.  This  seems  somewhat 
radical  treatment,  but,  as  a  rule,  the  inventory  schedules 
for  these  several  classes  are  catch-basins  for  all  sort  of  charges, 
which  seem  to  swell  the  inventory  values  without  adding  to 
the  real  assets  of  the  manufacturing  enterprise. 

With  a  new  concern,  such  treatment  of  these  items  is,  of 
course,  more  radical  than  is  justified,  and  our  own  practice 
where  entirely  new  departments  have  been  built  up,  has  been 
to  assess  these  items  with  a  depreciation  charge  of  15  or  20 
per  cent  per  year,  until  they  have  been  marked  down  to  the 
point  indicated  by  the  schedule. 

In  the  case  cited  (a  new  shop  purchasing  $1000  worth  of 
small  tools  at  the  beginning  of  the  first  year,  and  8100  worth 
in  each  of  the  ensuing  three  years),  we  should  charge  off  15 
per  cent  of  $1000  cost  of  small  tools  for  two  years,  and  20 
per  cent  for  the  third  year,  and  we  should  write  off  50  per 
cent  of  the  $100.00  additional  purchased  each  year.  At  the 
end  of  three  years,  therefore,  the  inventory  on  the  original 
lot  would  be  $500.00,  and  the  inventory  value  of  the  three 
years'  purchases  of  $300.00  would  be  $150.00,  making  a  total 
inventory  of  $650.00  for  the  purchase  price  of  $1300.00. 

In  the  discussion  of  Mr.  Piez's  paper  Mr.  R.  J.  Hearne  said: 

A  perpetual  inventory  is  a  time  saver. 

A  written  invoice  of  all  goods  junked  is  vital. 

It  has  been  found  best  to  number  each  section.  Symbols 
should  be  avoided.  At  first  they  seem  helpful,  in  the  end 
they  are  a  nuisance. 

The  inventory  items  should  all  be  on  cards.  Books  are  not 
practicable. 

Appraisal  of  present  value  can  only  be  made  by  a  competent, 
honest  person,  who  knows  all  the  facts  and  is  familiar  with  the 
business.     Appraisals  by  outsiders  are  of  little  value. 

Taking  off  a  fixed  percentage  is  unreliable.  A  simple  test 
is  to  ask  for  how  much  cash  you  would  be  willing  to  part  with 
the  machine.  Honestly  applied  this  test  will  give  an  accurate 
value. 

Mr.  Piez  in  closing  the  discussion  said: 

An  occasional  check  by  actual  count  and  a  re-appraisal 
of  the  value  of  the  active  items  on  the  basis  provided  in  the 
schedule  of  depreciations  is  strongly  advised. 

In  order  to  compare  the  two  schedules  a  condensed  depre- 
ciation statement  for  a  34-inch  boring  mill  costing  $1318  and 
purchased  Jan.  1,  1894,  developed  first  on  a  straight  deprecia- 
tion of  4j  per  cent  on  the  original  cost  and,  immediately  below, 
on  a  10-per  cent  rate  on  the  reducing  balance,  is  given  herewith : 

Inventory  Valuation  at  End  of  Year 


At  4j  % 
At  10% 


1894 


$1258.69 
1186.20 


1895 


1199.38 
1067.88 


1904 


$665 . 69 
413.90 


1909 


$369.04 
284.23 


1914 


$73.49 
144  23 


$0  00 
116  83 


*  These  and  the  following  items  are  depreciated  once  for  all  at  the  end  of 
the  first  year  after  their  purchase  by  the  stated  percentage,  and  the  balance 
is  then  carried  on  the  inventory  without  further  reduction. 


By  the  second  method  the  original  cost  is  never  wholly  extin- 
guished, but  the  amount  of  depreciation  thus  written  off  each 
year  approaches  more  nearly  the  shrinkage  in  value  that  usually 
takes  place.  Under  normal  conditions  loss  in  the  selling  value  * 
*  Why  should  the  selling  value  be  considered  ?  The  equipment  is 
not  for  sale  as  a  secondhand  machine;  it  is  being  used,  and  its  value 
to  a  going  concern  is  what  it  would  cost  to  replace  it  if  it  were  burned. 


DEPRECIATION.    INVENTORY  VALUATION.    APPRAISALS 


91 


of  any  item  of  equipment  is  more  rapid  in  the  early  years  of  its 
life  than  in  the  later  years.  Then,  too,  there  is  usually  some 
scrap  value  at  the  end  of  the  period. 

The  method  employed  by  many  manufacturers  of  charging 
depreciation  to  Profit  and  Loss  is  wrong,  for,  while  this  method 
brings  the  book  values  of  assets  in  line  with  actual  values  it 
does  not  make  depreciation  a  part  of  the  cost  of  production. 
All  equipment,  jigs,  templates  or  patterns  especially  made 
for  a  particular  order  should  be  wholly  charged  to  that  order, 
and  the  reduction  in  value  of  all  other  buildings  and  equip- 
ment, as  determined  by  the  schedule  of  depreciation  must  be 
considered  as  a  legitimate  expense  of  the  business  and  charged 
against  the  cost  of  the  product.  The  easiest  way  of  accom- 
plishing this  is  to  estimate  in  advance  the  depreciation  of  each 
department  of  the  plant  for  the  ensuing  year,  and  assess  one- 
twelfth  of  these  estimates  as  monthly  expense  charges  against 
the  departments,  as  factors  in  the  departmental  overheads. 
Depreciation  charges  that  cannot  properly  be  assessed  against 
any  particular  department  should  be  assessed  against  general 
expense  and  distributed  over  the  product  through  the  general 
expense  factors. 

Depreciation  Appraisals  for  Insurance  Purposes  * 

The  method  developed  by  the  appraisal  department  of 
the  Factory  Mutual  Fire  Insurance  Companies  is  based 
on  the  theory  that  if  the  larger  factors  are  carefully  ap- 
praised, the  less  important  items  may  be  estimated  in  groups. 

The  price  values  used  for  buildings  and  all  the  subdivisions  of 
machinery  are  based  on  replacing  new  at  today's  market  (regard- 
less of  original  cost)  and  these  price  values  are  then  depreciated 
as  judgment  dictates. 

Depreciation  of  Buildings.  A  building  badly  out  of  repair 
naturally  deserves  fairly  heavy  depreciation.  A  building  in 
good  repair,  but  so  antiquated  in  size  and  shape  that  it  is  man- 
ifestly unsuited  for  the  uses  to  which  it  is  being  put,  also  deserves 
a  reasonably  heavy  deduction.  When,  however,  a  building  is 
of  such  dimensions  that  it  perfectly  answers  its  purpose,  has 
remained  plumb  and  is  constantly  kept  in  repair,  actual  age  has 
little  influence  on  judgment.  It  is  considered  that  about  5 
per  cent  of  the  new  value  is  enough.  In  other  words,  buildings 
are  not  depreciated  a  certain  per  cent  a  year,  but  have  a  flat 
amount  deducted  on  account  of  condition  and  not  on  account 
of  age. 

Depreciation  of  Machinery.  Machines  vary  greatly  both  in 
the  manner  in  which  they  wear  out  and  in  the  rapidity  with  which 
they  go  out  of  date.  In  rare  cases  where  a  machine  has  been 
practically  superseded  in  the  market  by  one  that  will  cost  much 
less,  it  is  better  practice  to  use  for  a  new  value  the  cost  of  the 
less  expensive  machine  rather  than  show  an  excessive  deprecia- 
tion.    As  a  rule,  the  amount  deducted  applies  chiefly  to  wear. 

With  machines  that  need  repairs  at  all  points  from  time  to 
time,  a  day  arrives  after  a  period  of  years  when  it  is  better  to 
throw  them  out  altogether  and  replace  with  new  rather  than 
continue  to  repair  them.  Practically  all  textile  machines  come 
in  this  class,  as  do  engines  and  other  power  plant  machines,  and 
also  some  machine  tools,  wood  working  and  paper-working 
machines.  To  all  of  that  nature  a  depreciation  table  is  applied, 
allowing  2,  2\,  3,  4  or  5  per  cent  a  year,  deducted  from  the  net  and 
not  from  the  gross.  If  a  machine  is  entirely  rebuilt,  it  is  usually 
considered  to  be  worth  at  that  time  within  5  per  cent  of  new 
value  and  the  table  is  applied  for  succeeding  years.  In  either 
case,  the  probable  average  life  is  ascertained  and  the  table  that 
best  fits  is  used,  but  seldom  is  the  depreciation  carried  to  a  point 
beyond  50  per  cent. 

There  are  many  kinds  of  machines  where  the  main  portion, 

*  Extracts  from  a  paper  by  John  G.  Morse,  Appraiser,  Inspection 
Dept.,  Assoc.  Factory  Mutual  Fire  Insurance  Companies,  on  "Ac- 
Curate  Appraisals  by  Short  Methods."      Trans.  A.S.M.E.,  1916. 


sometimes  as  much  as  SO  per  cent  of  the  total  value,  remains  for 
years  with  practically  no  wear.  The  small  moving  parts,  how- 
ever, wear  so  rapidly  that  they  are  constantly  being  replaced, 
This  is  true  of  a  great  variety  of  machine  tools,  metal,  wood  and 
paper-working  machines.  With  these  it  is  considered  thai  tin- 
wearing  parts  are  always  in  a  state  of  .50  per  cent  depreciation, 
and  the  amount  deducted  is  half  of  the  percentage  the  value  of 
the  wearing  parts  bears  to  the  total  value  of  the  machine.  This 
method  also  applies  to  rolling  mills,  rubber  mills  and  calendars 
where  the  frames  and  gearing  remain  intact  for  years  and  the 
rolls  constantly  wear  down  and  are  replaced. 

There  is  another  class  where  neither  the  depreciation  table 
nor  the  average  described  above  can  be  used.  This  includes 
most  of  the  machinery  in  paper  mills,  bleaeheries  and  dye  works 
where  wet  processes  are  used.  These  machines  wear  rapidly 
and  are  frequently  rebuilt.  Paper  machines  in  particular  are 
composed  of  a  train  of  parts  and  from  time  to  time  different 
sections  are  either  rebuilt  or  removed  entirely  and  replaced. 
The  depreciation  in  such  cases  depends  upon  the  condition  at  the 
time  of  the  appraisal  and  is  not  influenced  by  the  age  of  what 
remains  of  the  original  machine. 

Depreciation  of  Shafting,  etc.  Shafting  shows  such  slight 
wear  that  depreciation  is  seldom  recognized.  It  is  becoming 
the  custom,  however,  to  show  either  a  slight  deduction  or  else 
purposely  record  the  new  value  at  a  conservative  figure  when,  on 
account  of  poor  arrangement  an  amount  in  excess  of  what  is 
needed  is  in  use. 

Main  belts  wear  slowly,  while  machine  belts  will  always 
average  50  per  cent  wear,  so  that,  as  a  rule,  the  total  amount  of 
belting  is  depreciated  33  £-  per  cent. 

Piping  will  last  for  years,  except  where  exposed  to  acid  fumes. 
Pipe  covering  and  valves  show  wear,  but  piping  as  a  whole  is 
seldom  depreciated  more  than  10  per  cent. 

Electric  wiring  wears  little  and  is  usually  kept  pretty  well  up 
to  date  on  account  of  the  rigid  rules  of  both  local  authorities 
and  the  insurance  companies.  It,  therefore,  seldom  deserves 
much  depreciation. 

The  miscellaneous  equipment  classed  under  the  head  of 
"furniture  and  apparatus"  is  made  up  of  objects  most  of  which 
are  constantly  wearing  out.  The  amount  is,  therefore,  usually 
depreciated  from  20  to  50  per  cent. 

Small  tools,  dies,  print  rolls  and  electrotypes  wear  out,  but 
they  are  affected  to  a  great  extent  by  obsolescence.  Patterns, 
drawings,  moulds  and  lasts  are  subject  to  depreciation  for  the 
latter  reason  only.  In  determining  the  amount  to  be  deducted 
from  the  new  value  of  any  of  these  the  appraiser  n.ust  ascertain 
what  proportion  of  the  equipment  is  indispensable  or  practically 
new. 

Appraisals  of  Manufacturing  Property  * 
We  define  the  valuation  of  industrial  property  as  the  value  at 
which  the  physical  manufacturing  property  of  a  corporation  is 
carried  on  its  books. 

Our  view  is  that  the  valuation  of  land,  buildings  and  equip- 
ment should  be  shown  on  the  books  at  their  original  cost,  less  a 
depreciation  for  use  or  obsolescence.  As  a  check  on  our  valua- 
tions and  on  our  depreciation  ratios,  we  have  appraisals  made  by 
professional  appraisers  at  intervals  of  approximately  ten  years 
and  compare  results  carefully  with  our  valuations. 

In  contrast  with  the  accounting  method,  which  should  be 
based  on  actual  cost,  we  believe  that  appraisals  should  be  n  ade 
on  the  basis  of  present  cost  to  replace,  less  proper  allowance  fur 
age  or  for  obsolescence,  rather  than  on  the  basis  of  original  <  ost, 
as  the  latter  may  be  difficult  to  determine  at  the  time  of  the 
appraisal.  Great  care  should  be  exercised  in  comparing  appraisal 
values  made  on  the  basis  of  replacement  values  to  avoid  taking 
advantage  of  an  abnormal  present  cost,  such,  for  instance,  as 
would  occur  in  the  case  of  appraisals  made  at  the  present  time, 
due  to  the  very  high  prices  of  practically  all  materials  and  labor. 
*  J.  B.  Milliken,  Treasurer,  The  Yale  &  Towne  Mfg.  Co.,  Stamford, 
Conn.,  Jour  A.S.M.E.,  Feb.,  1917. 


CHAPTER  X 
SYSTEMS"  AND   "RED  TAPE."    FUNDAMENTALS  OF  A  COST  SYSTEM 


Use  of  Red  Tape.  Prosperity  depends  on  "red  tape" — a 
system  of  high  organization  which  can  have  its  root  and  its  fruit 
only  in  strict  adherence  to  clearly  outlined  divisions  of  respon- 
sibility and  authority  and  in  accurate  recording  of  the  minutest 
details.— Geo  F.  Stratton,  Eng.  Mag.,  Vol.  34,  p.  569. 

Unless  a  controlling  common  sense  is  continually  exercised,  a 
system  of  red  tape  may  be  developed  which  will  be  out  of  all 
proportion  to  the  actual  requirements  of  the  business. 

System  overdeveloped  becomes  red  tape,  and  that  perhaps  i~ 
to  be  avoided  as  much  as  lack  of  system. — Humphreys  on 
"  Business  Engineering." 

Red  Tape  is  simply  bad  system,  system  that  has  never  been 
tackled  by  all  the  individuals  of  a  loyal  and  interested  organiza- 
tion determined  to  answer  the  following  questions: 

1.  How  can  we  simplify? 

2.  How  can  we  eliminate? 

3.  How  can  we  condense? — F.  B.  Gilbreth  in  "Practical  Talks 
on  Contracting." 

Too  much  cost  system,  too  many  figures,  defeat  the  real  pur- 
pose of  costs,  clogging  action. — B.  A.  Franklin,  Eng.  Mag.,  Vol. 
43,  p.  709. 

One  of  the  essential  elements  of  scientific  management 
is  study  of  the  subject  of  waste,  whether  of  capital,  material 
or  time,  or  even  of  ink  and  of  red  tape.  The  work  of  the 
committee  on  information  and  statistics,  and  especially  that 
of  the  "  leak  hunter,"  will  include  the  study  of  whether  the 
excessive  use  of  red  tape  hinders  the  progress  of  the  work  or 
is  costly  in  itself,  and  of  finding  ways  by  which  the  use  of  red 
tape  may  be  curtailed.  The  words  "  red  tape  "  are  now  used 
to  signify  any  systematic  method  of  making  records,  issuing 
requisitions  or  orders,  checking  against  mistakes,  counter- 
signing checks  and  the  like.  In  scientific  management  prop- 
erly applied  this  so-called  red  tape  is  used  only  so  far  as  inves- 
tigation shows  it  to  be  necessary  or  desirable,  and  automatic 
machinery  or  other  means  are  used  to  make  the  quantity  of  it 
as  little  as  possible. — Win,  Kent,  in  "  Investigating  an 
Industry." 

One  fact  that  has  retarded  the  extension  of  cost  accounting  is 
the  unnecessary  and  the  expensive  refinement  to  which  it  is 
sometimes  carried.  There  can  be  no  objection  on  principle  to 
red  tape  when  that  tape  is  necessary  to  tie  together  the  organi- 
zation; but  sometimes  there  may  be  too  much  of  it. 

It  is  a  waste  of  valuable  time  and  energy  to  attempt  to  make 
each  detail  of  the  estimate  absolutely  correct. — C.  B.  Thompson. 

The  System-mad  Manager.  System  is  the  rut  in  which  some 
men  are  proud  to  live. 

The  systematic  type  of  manager  is  a  decided  improvement  on 
the  rule-of-thumb  type. 

Averages  are  the  fallacy  of  the  system-mad  manager. — 
E.  St.  Elmo  Lewis. 

If  there  is  one  thing  more  than  another  that  excites  criticism, 
it  is  red  tape  that  does  not  justify  itself  in  practical  results. 
It  may  show  itself  in  a  mass  of  undigested  reports,  troublesome 


to  make  up  in  the  shop  and  impracticable  to  use  in  the  office, 
or  it  may  take  the  forms  of  volumes  of  data  that  no  one  ever 
looks  at.  Another  form  of  red  tape,  not  uncommon,  is  carrying 
small  items  of  cost  to  such  a  degree  that  the  process  of  deter- 
mining them  is  more  expensive  than  the  costs  themselves. — 
Nicholson. 

Cost  Systems  in  Government  Shops.  Captain  Metcalfe 
thus  describes  a  part  of  the  system  in  use  in  United  States 
Arsenals  before  his  book*  was  written  (1885). 

Timekeeping.  The  timekeeper,  generally  the  foreman,  goes 
about  the  shop  towards  the  close  of  the  day  and  asks  each  work- 
man how  he  has  spent  it.  According  to  the  workman's  recol- 
lection he  enters  the  time  reported  in  a  book.  At  the  end  of  the 
month  these  time  books  go  to  the  main  office  where  the  clerks 
use  them  in  making  up  the  pay  roll,  and  afterward  allotting  the 
various  charges  among  the  appropriations  to  which  they  belong. 
But  the  latter  part  of  this  work  is,  from  the  nature  of  the  case, 
very  imperfectly  performed.  The  entries  are  confusing  and 
indefinite.  So  the  deciphering  of  these  entries  falls,  as  does  the 
statement  of  the  work  done,  and  the  cost  of  the  fabricated  product, 
upon  the  foreman,  again  burdening  him  with  work  for  which  he 
is  not  fitted,  and  interfering  with  the  free  exercise  of  his  proper 
functions. 

Procuring  and  Accounting  for  Malarial.  1.  Let  us  take  the 
simplest  case  first,  and  suppose  the  material  to  be  in  store,  and 
the  foreman  to  know  it.  He  makes  an  entry  in  the  "Store 
Book";  the  commanding  officer  signs  it;  the  book  goes  to 
the  ordnance  storekeeper  or  one  of  his  assistants,  who  sends  the 
material  and  the  book,  when  he  can  get  it,  to  the  foreman.  The 
latter  receipts  for  the  material  on  the  margin  of  the  original 
entry;  the  material  is  expended  on  the  books  of  the  storekeeper 
and  the  transaction  is  at  an  end. 

2.  When  there  is  nothing  suitable  in  store  or  the  foreman 
thinks  there  is  not,  he  makes  his  wants  known  on  the  "Purchase 
Book."  As  this  book  is  kept  in  the  office,  he  goes  there,  taking 
a  memorandum  of  his  wants;  they  are  thus  written  twice  (1,  2). 
They  are  then  approved  by  the  commanding  officer  (3);  written 
on  an  order  blank  (4);  copied  on  a  duplicate  stub  (5);  signed 
again  by  the  commanding  officer  (6);  and  sent  to  the  dealer  (7). 
The  supplies  come  with  the  bill,  which  is  copied  into  the  inspec- 
tor's book  (9)  and  initialed  by  him  after  inspection  (10).  To  get 
it  out  of  store,  the  foreman,  still  desiring  them,  writes  them  again 
on  the  store  book  (11),  and  after  being  again  approved  by  the 
commanding  officer  (12)  the  book  goes  to  the  storekeeper,  who 
takes  the  material  and  the  book,  when  he  can  get  it,  to  the  fore- 
man, whose  receipt  (13)  ends  his  share  of  the  business.  The 
initialed  bill  then  goes  to  the  ordnance  storekeeper,  who  receipts 
for  the  stores  on  the  duplicate  stub  (14).  The  assistant  store- 
keeper also  keeps  a  record,  of  a  more  or  less  perfect  kind,  of  all 
receipts  into  (15)  and  issues  from  (16)  his  storehouse. 

From  the  stubs  receipted  by  the  ordnance  storekeeper  and 
the  bills  received  from  the  dealer,  is  made  out  a  certificate  of 
inspection  (17)  signed  by  the  assistant  inspector  (18)  then  by 
the   commanding  officer  as  principal  inspector   (19)   then  the 

*  The  Cost  of  Manufactures  and  the  Administration  of  Work- 
shops. Public  and  Private. 


92 


"SYSTEMS"   AND   "RED   TAPE."    FUNDAMENTALS  OF  A  COST  SYSTEM 


93 


material  is  receipted  for  again  by  the  ordnance  storekeeper 
(20);  then  approved  by  the  commanding  officer  and  forwarded 
to  the  chief  of  ordnance  for  payment  to  be  authorized  (21); 
then  returned  by  the  chief  of  ordnance  for  payment  (22); 
Vouchers  in  duplicate  (23,  24)  are  then  made  out,  approved 
by  the  commanding  officer  (25,  26)  and  the  creditor's  receipt 
affixed  to  each  (27,28)  after  payment.  The  purchase  is  then 
entered  in  duplicate  on  the  monthly  abstract  of  purchases,  a 
cash  paper  (29,  30) ;  and  again  in  duplicate  on  the  Quarterly 
Abstract  of  purchases,  a  property  paper  (31,  32).  The  Ord- 
nance Storekeeper  credits  himself  with  the  expenditure  of  the 
same  items  on  the  abstract  of  expenditures,  also  in  duplicate 
(33,  34). 

Examples  Illustrating  the  Practical  Use  of  the  Service  Cards. 
Note.— The  card  is  here  reduced  to  fit  the  page. 

(7-) 

SERVICE  CARD,  Frankford  Arsenal.         APR   6   1885 

No.  Name.  Price  per  unit 

235,  Larmigan,  0,25. 


Charge  to- 

Nature  of  service  in  detail. 

No.  *>f  units. 

s-o.  soy 

/<0&tz-'?nJi4e   3.  J 

N.  B.   Make  but  one  entry  on  each  card. 

Pieces. 

Time. 

c.    -zf. 

AMOUNT. 

o.ai. 

<fS 

Doll's. 

Cents. 

N.     3-i 

'<$ 

(8.) 

SERVICE  CARD,  Frankford  Arsenal.'        APR   6   1885 


Name. 


Price  per  unit. 


23£ 

», 

Larmigan, 

0,25 

Charge  to— 

Nature  of  service  in  detail. 

No.  of  units. 

s-o.  sop 

ccccdj    tj.tz-u-tzprt.tz.,    etc 
/(O&tj.mfi'Ce  4- J 

N.  B.  Make  but  one  entry  on  each  card. 

Pieces. 

Time. 

c.     ai. 

o.ai. 

3s 

Doll's. 

Cents. 

3<t 

■3 

The  Card  System.  Capt.  Metcalfe  proposes  to  use  cards 
instead  of  books  for  original  entries.     He  says: 

"For  every  act  or  name  to  be  recorded,  there  shall  be  a 
separate  card;  so  that  the  cards  being  combined  or  classified, 
the  acts  or  names  they  represent  will  be  so  too.  For  this  pur- 
pose I  propose  the  use  of  single  cards  for  all  initial  records,  and 
their  gradual  consolidation  by  the  simplest  mechanical  means 
until  they  are  finally  transcribed  into  the  permanent  books  of 
record. 

The  independence  of  a  representative  unit  of  record  is  the 
basis  of  system  I  propose,  combined  with  the  use  of  a  nomen- 
clature by  which  all  acts  and  their  purposes  may  be  set  forth  by 
the  actors  in  such  form  as  to  be  intelligible  to  those  whose  proper 
office  it  is  to  enroll  and  classify  them. 


The    following   are    the    cards    required    to    carry   out    the 
system : 

1.  The  order  card  or  ticket, 

2.  The  service  card, 

3.  The  material  card, 

4.  The  correspondence  card. 

CASE  II. 
Drawing  Material  from  Outside  the  Arsenal  to  be  held  in  Charge. 


Frankford  Arsenal, _MAY__24  1883_£/;j 
Receipts  and  issues  from,      QS.(/.)    to     A  (/.)      to  to 


Per  ABSTRACT. 


?.{'■'.) 


4fS(S.C.) 


QUANTITY. 


No.  Unit. 

Assumed. 


401,/.) 


ftcs. 


Actual. 


■*?(/■> 


it,. 


Price  per  unit. 

AMOUNT. 

44  \00.\e.c.) 


NAME. 


Condition. 


N.  B.     Make  but  one  entry  on  each  card. 


#W  tatfttm*  /*?m  fi>a4te*n*  fmm*4ad- 


(/.  corrected  by  s.c.) 


4t044    caot    {.s.c.) 


(~    h<*&4  tad,  /{' 'w 


CHARGE  TO 


2/S 


Object 


CREDIT  TO 


Object. 


WEIGHT,  Lbl 


MEASURE,  Ft. 


Received  from,  or  sent  to 


REC'O 
BY 


Foremen  punch  here. 


Storekeepers  punch  here. 


ISSUED 
BY 


Foremen  punch  here. 


Storekeeper  punch  here. 


AUTHORITY, 


CO 


Samples  of  the  service  and  material  cards,  repro- 
duced from  Capt.  Metcalfe's  book,  reduced  in  size,  are 
here  shown.  The  actual  service  card  is  about  4|x55 
inches. 

The  card  system  proposed  by  Capt.  Metcalfe  has  been 
generally  adopted  in  Government  shops,  but,  as  shown  in 
some  of  the  testimony  given  before  Congressional  Investi- 
gating Committees,  much  yet  remains  to  be  done  in  the 
way  of  cutting  out  unnecessary  red  tape.  Quotations  from 
this  testimony  are  given  on  the  next  page. 

Accounting  systems  in  Government  arsenals: 

Major  0.  M.  King,  Ordnance  Dept.,  Rock  Island  Arsenal, 
Rock  Island,  111.  Testimony  Jan.  12,  1913,  before  the 
Special  Committee  of  the  House  of  Representatives  to  inves- 
tigate the  Taylor  and  other  systems  of  shop  management, 
Vol.  2. 


94 


BOOKKEEPING  AND   COST  ACCOUNTING 


(Abstract),  p.  1081.  The  engineering  division  makes  up  a  list 
of  parts  necessary  to  finish  an  order.  A  copy  of  this  list  goes  to 
the  planning  room. 

The  planning  room  determines  the  different  operations  to 
perform  in  order  to  complete  any  particular  part.  This  is 
entered  on  a  route  sheet. 

For  each  particular  operation  a  job  card  is  made. 

A  move  ticket  is  issued,  which  is  to  follow  the  material  from 
the  storehouse  to  the  different  machines  and  to  the  assembling 
place. 

When  the  material  is  moved  to  the  first  machine,  the  card 
comes  back  to  the  division,  notifying  it  that  the  material  is  at 
the  machine. 

Then  the  shop  card  covering  the  operation  is  posted. 

(Time  studies  and  instruction  cards  had  not,  then  been  intro- 
duced). 

Gen.  Crozier's  testimony. 

P.  1128.  In  ascertaining  the  cost  of  our  productions,  I  have, 
of  course,  encountered  what  every  manufacturer  encounters, 
namely,  the  elusive  nature  of  costs.  It  is  very  difficult  to  ascer- 
tain costs. 

Mr.  Redfield  (to  Mr.  Pepper):  I  wish  you  would  bear  that 
phrase  in  mind;   it  would  make  a  classic. 

P.  1130.  In  some  establishments  there  is  a  process  which  still 
exists;  a  timekeeper  with  a  ruled  sheet  on  a  board  would  walk 
about  the  shop  every  day  and  ask  each  workman  how  much  time 
he  has  spent  on  different  jobs  that  he  had  worked  on  that  day 
and  put  them  down  with  more  or  less  accuracy — often  consider- 
abl  i  less.  The  job  card  contains:  No.  of  the  work  to  which  the 
expense  h  to  be  charged.  Symbol  of  the  form  No.  for  this  card. 
Man's  name  and  No.  Symbol  for  the  portion  of  the  shop  in 
which  he  works.  .  Piece  symbol.  Lot  No.  No.  of  the  operation 
and  enough  of  the  description  of  the  operation  to  understand 
it.  Name  of  the  article  and  a  statement  of  what  the  man  is  to 
do.  No.  of  the  drawing.  No.  and  location  of  the  machine. 
All  this  is  placed  on  the  card  when  it  is  handed  to  the  man. 
The  time  is  stamped  on  the  card  when  it  is  given  to  him,  and 
when  he  returns  it. 

Cost  Accounting  in  the  Brooklyn  Navy  Yard.  (Extract 
from  the  testimony  of  Adolph  Muller,  sheet-iron  worker,  in  a 
hearing  before  a  special  Committee  of  the  House  of  Repre- 
sentatives to  investigate  the  Taylor  and  other  systems  of 
Scientific  Management,  Oct.  25,  1911,  Government  Printing 
Office,  1912,  Vol.  1,  p.  672.) 

Now,  in  cost  accounting  in  repairs  for  ships — I  am  the  planner 
over  there  and  had  occasion  to  make  out  the  instruction  cards 
to  make  74  brackets  for  the  storage  of  fire  extinguishers.  In 
order  to  get  at  the  cost  accounting  on  account  of  these  brackets 
being  made  to  be  installed  on  13  different  ships,  and  being  that 
there  were  so  many  operations  on  each  bracket,  it  necessitated 
the  writing  of  104  instruction  cards  and  104  duplicates.  I 
complained  about  having  to  write  out  104  tickets  for  a  small  job 
that  in  my  estimation  wouldn't  cost  any  more  than  $40  to  do, 
and  he  instructed  me  to  put  all  the  job  numbers  on  the  one 
ticket.  There  wasn't  room  on  the  ticket  to  do  it,  and  I  sug- 
gested to  attach  a  slip,  which  I  did,  with  all  the  job  numbers 
written  on  the  slip.  I  distributed  those  slips  and  told  the  men 
to  charge  up  their  time  pro  rata,  so  that  left  the  man  to  do  more 
figuring  according  to  that  system  than  he  would  have  had  to  do 
if  he  had  no  system  at  all,  because  prior  to  that  the  charging  of 
the  time  was  left  to  the  clerk,  and  the  clerk  would  divide  up  the 
time  equally. 

Now,  the  condition  is  this,  that  a  man  has  all  those  job  num- 
bers, and  he  must  divide  up  his  time  and  send  his  card  in  to  the 
accounting  department  in  order  to  receive  his  pay,  with  the 
number  and  the  amount  of  time  written  on  it.  and  the  result  is 
that  the  men  are  not  bookkeepers  and  the  time  isn't  being  sent 


in  right  and  the  job  isn't  finished  yet,  but  the  cost  accounting 
on  that  job  will  be  anything  but  what  it  should  be. 

A  Better  System.  Here  is  the  way  the  accounting  might 
have  been  done  under  a  better  system. 

The  Navy  Yard  receives  from  the  Bureau  of  Construction 
and  Repair  an  order  "  Make  74  brackets  for  fire-extinguishers 
as  per  sketch  herewith.  Deliver  them  to  warehouse  tagged 
as  follows,  5  for  Columbia,  6  for  Connecticut,"  etc. 

The  planning  department  has  a  working  drawing  made  with 
complete  instructions,  and  makes  as  many  job  tickets  as 
there  are  men  who  are  to  work  on  the  several  operations. 
The  first  card  contains,  or  has  attached  to  it  an  order  or  the 
storekeeper  for  the  raw  material  needed.  The  move  man 
with  tins  order  gets  the  material  and  takes  it  to  the  place 
where  the  first  operation  is  to  be  done,  and  returns  the  order 
to  the  planning  room  with  the  storekeeper's  check  on  it- 
showing  that  the  material  has  been  delivered,  and  a  memo- 
randum of  the  kind,  quantity  and  price.  When  the  workman 
who  is  to  do  the  first  operation  (or  series  of  operations),  has 
finished  his  preceding  job  he  gets  the  job  ticket  for  his  work 
on  the  74  brackets,  has  it  stamped  b}r  the  time  clerk  and  pro- 
ceeds with  the  work.  When  it  is  finished  he  returns  the 
ticket  with  the  time  stamped  on  it,  and  with  the  foreman's 
or  inspector's  cheek  certifying'  that  the  work  has  been  done 
properly.  The  job  tickets  for  the  remaining  operations  are 
given  out  and  returned  in  like  manner.  Y\  hen  all  the  opera- 
tions are  finished  the  accounting  department  enters  on  the 
tickets  the  costs  for  material,  labor  and  burden  and  makes  a 
Piece  Cost  Card  for  the  74  brackets,  which  summarizes  the 
information  on  the  job  tickets,  credits  Labor,  Stores  and 
Burden  accounts  with  their  respective  portion  of  the  costs, 
and  charges  Warehouse  with  the  total.  Thus,  the  cost 
accounting  is  complete  up  to  the  delivery  of  the  brackets 
to  the  warehouse,  which  is  credited  and  tl.e  c'ifferent  ships 
charged  as  each  receives  its  proportion  of  the  1  laikets. 

The  Federal  Trade  Commission's  Cost  System  Funda- 
mentals. The  Federal  Trade  Commission,  Edward  N'.  Hur- 
ley, Chairman,  has  published  a  pamphlet  of  31  pages  entitled 
"  Fundamentals  of  a  Cost  System  for  Manufacturers."  It 
presents  some  good  arguments  in  favor  of  the  use  of  a  cost 
system  by  manufacturers,  and  outlines  in  seme  detail  the 
elements  of  such  a  system.  In  genera!,  it  shows  a  regular 
double-entry  journal  and  ledger  system,  the  ledger  having 
36  accounts.  The  commercial  end  factory  accounts  are  all 
included  in  one  ledger,  and  the  ccsts  determined,  as  far  as 
the  pamphlet  goes,  are  the  total  costs  for  a  month  of  "  work  in 
process  "  and  of  finished  goods.  The  "  Job  Cost  System  "  is 
recommended  and  briefly  described,  but  no  example  of  its 
use  is  given. 

In  the  system  described  Accounts  Receivable  is  detited 
with  Sales,  and  credited  with  Sales  Returns,  Allowances,  and 
Discounts,  also  with  Cash  for  cash  sales,  and  with  Reserve 
for  Bad  Debts.  Accounts  payable  is  credited  with  all  indebt- 
edness incurred  for  material,  labor  and  expenses  of  all  kinds, 
and  debited  to  Cash  and  to  Discounts  on  Purchases  as  the 
indebtedness  is  settled.  Work  in  Process  is  charged  with 
Material  and  Labor  directly  expended  in  production,  and 
with  Overhead,  which  is  subdivided  into  three  departments 


"SYSTEMS"   AND   "RED   TAPE."    FUNDAMENTALS  OF  A  COST  SYSTEM 


95 


A,  B,  and  C,  each  of  which  is  charged  on  the  basis  of  the 
"  productive  hours,"  67  cents  per  hour  for  A,  52  cents  for 

B,  and  15  cents  for  C.  The  total  indirect  expenses,  sub- 
divided into  Labor,  Building  Expense,  Power,  Insurance, 
Taxes,  Repairs,  and  General  Factory  Expenses,  together  with 
Reserve  for  Depreciation  are  charged  to  these  three  over- 
heads. Finished  Goods  is  charged  and  Work  in  Process 
credited  with  the  cost  of  goods  put  in  warehouse,  and  Finished 
Goods  is  credited  and  Trading  Account  charged  with  the  cost 
of  goods  sold.  Profit  and  Loss  is  charged  with  Shipping, 
Selling  Expense,  General  Expense,  Discount  on  Sales  and 
Reserve  for  Bad  Debts,  and  credited  with  the  gain  on  Trading 
Account  and  with  Discounts  on  Purchases.  Surplus  account 
is  credited  and  Profit  and  Loss  charged  with  the  credit 
balance  of  Profit  and  Loss  Account. 

The  complete  ledger  entries  of  the  36  accounts,  including 
196  entries  from  the  journal  and  12  balancing  entries,  a  total 
of  20S,  are  given  in  six  pages  of  the  pamphlet.  By  transcrib- 
ing the  196  entries  to  the  form  of  the  Combined  Journal- 
Ledger  or  Column  Ledger  (see  page  17,  ante),  and  dividing 
the  ledger  into  two,  a  Commercial  Ledger  and  a  Factory 
Ledger,  the  number  of  the  entries  is  reduced  to  103,  viz.:  28 
in  the  Commercial  Ledger  and  75  in  the  Factory  Ledger, 
as  shown  below,  on  page  97.  Two  additional  accounts  are 
needed  in  making  this  division,  Factory  Account,  to  which 
all  transactions  between  the  Company's  office  and  the  fac- 
tory are  charged  or  credited  in  the  Commercial  Ledger,  and 
Company  Account,  for  the  same  transactions,  in  the  Factory 
Ledger.  At  the  bottom  of  the  Factory  Ledger  there  is  a 
statement  of  "  Details  of  Credits  to  Company  Acct."  con- 
taining 20  items  which  might  have  been  made  as  entries  in 
the  Factory  Ledger,  increasing  the  number  of  accounts  in 
it  from  19  to  28  and  the  number  of  entries  from  75  to  95,  but 
it  is  more  convenient  to  enter  them  in  a  separate  state- 
ment. 

In  the  Balance  Sheet  (page  96)  are  entered  in  the  two 
middle  columns  the  total  charges  and  credits  of  the  several 
accounts  in  the  Commercial  and  Factory  Ledgers.  In  most 
of  the  accounts  the  Dr.  and  Cr.  sides  balance  (8  out  of  15 
in  the  Commercial  Ledger  and  9  out  of  17  in  the  Factory 
Ledger,  as  shown  by  the  check  marks  at  the  right  of  the 
figures  in  the  columns  headed  Total  Charges).  When  the 
account  is  open  or  unbalanced,  the  difference  between  the 
two  sides  is  added  to,  or  subtracted  from  as  the  case  may 
require,  the  balance  at  the  beginning  of  the  month  to  obtain 
the  balance  at  the  end  of  the  month. 

On  page  9S  is  shown  a  modified  form  of  the  Factory  Ledger 
which  has  some  advantages.  The  number  of  accounts  is 
reduced  from  19  to  10,  and  the  number  of  entries  from  75  to 
27.  Eight  accounts,  Building  Expense,  Power,  Insurance, 
Taxes,  Reserve  for  Depreciation,  Repairs,  General  Factory 
Expense,  and  Shipping,  are  lumped  together  in  one  "  control  " 
account,  General  Charges,  and  they  are  taken  care  of  in  a 
separate  ledger  form,  entitled  Distribution  of  General  Charges 
and  Overheads.  The  last  two  columns  are  added  to  give  the 
details  of  the  entries  in  the  Condensed  Ledger:  Gen.  Charges 
to  Labor,  $1051.00  and  to  Gen.  Charges,  $436.66.  The 
Details  of  Credits  to  Company  Acct.  at  the  bottom  of  the 


ledger  on  page  97  should  also  be  given,  to  show  the  details 
of  the  item  Gen.  Charges  to  Company,  $3079.35. 

The  advantages  of  the  Column  Ledger,  or  Combined 
Journal-Ledger  over  the  old  style  double-entry  journal  and 
ledger  have  already  been  explained  (pages  20  and  30), 
but  for  convenience  they  may  here  be  restated. 

Instead  of  a  page  being  required  for  each  ledger  account 
only  two  pages— or  sheets  to  be  bound  in  a  loose-leaf  binder — a 
month  are  required,  one  for  the  Commercial  Ledger,  the 
other  for  a  Factory  Ledger. 

Making  a  double  entry,  debiting  one  account  and  crediting 
another,  is  done  by  writing  the  amount  once  in  the  proper 
column  and  line;  no  other  writing  whatever  is  needed, 
the  titles  of  all  the  accounts  being  printed. 

The  Journal  is  made  unnecessary.  Instead  of  making  a 
Journal  entry  as  follows: 


(3) 

(10) 

(in 

H2i 


Lundriua 

Bldg.  Exp. 
Overhead  A 
Overhead  H 
Overhead  I 


r, ,  i'uv  it 


(4) 

841 

84 

10 

252 

30 

336 

40 

168 

20 

00 


and  then  posting  the  amounts  on  five  pages  of  the  ordinary 
double-entry  ledger,  a  single  entry  is  made  in  column  4  of  the 
Factory  Ledger,  on  lines  3,  10,  11,  and  12,  of  the  figures 
84.10;  252.30;  336.40;  168.20.  The  sum  of  these  figures 
841.00  will  be  entered  at  the  bottom  of  column  4  if  there 
are  no  other  credits  of  Power  account,  otherwise  the  total  of 
the  column  will  be  entered  when  it  is  added  up  after  all  the 
entries  are  made. 

A  most  important  advantage,  not  heretofore  mentioned, 
is  that  photostat  copies  of  the  journal-ledger  pages  and  of 
the  balance  sheet  may  be  used,  instead  of  the  usual  form  of 
reports,  laboriously  transcribed  from  the  old-fashioned 
ledger,  for  the  information  of  officers  and  directors. 

The  functions  of  the  cost  system  are  stated  in  the  pam- 
phlet as  follows: 

A  "Cost  System"  provides  not  only  for  the  determination  of 
the  amount  of  each  element  (material,  labor,  expense),  of  cost 
properly  chargeable  to  each  job,  but  also  provides  for  an  improved 
method  of  bookkeeping  which  causes  the  books  to  reflect  at  all 
times  the  true  financial  and  industrial  condition  of  the  business 
and  renders  possible  the  preparation  of  monthly  statements  of 
conditions,  as  well  as  complete  monthly  statements  of  financial 
and  factory  operations. 

This  long  sentence  charges  the  Cost  System  with  far  more 
duties  than  should  properly  be  laid  upon  it.  It  charges  it 
with  certain  functions  which  belong  to  bookkeeping,  account- 
ing and  statistics,  and  to  statements  of  industrial  conditions, 
which  are  functions  of  other  departments. 

The  functions  of  the  several  departments  may  be  labeled 
as  follows: 

Bookkeeping.  Recording  in  proper  form  the  receipts  and 
expenditures  of  the  business,  sales,  purchases,  cash,  bills 
and  accounts  payable  and  receivable,  salaries,  pay  roll,  etc. 

Accounting.  Organizing  the  bookkeeping  system  and 
causing  it  to  show  not  only  the  record  of  receipts  and  expend- 
itures, but  their  relation  to  merchandise,  cost  of  plant  and  of 


96 


BOOKKEEPING  AND   COST  ACCOUNTING 


its  operation,  discount  and  interest,  depreciation,  repairs 
and  other  expenses,  profits  and  losses;  financial  conditions 
of  the  business. 

Statistics.  Historical  record  of  accomplishment  of  the 
business.  Goods  made  and  sold,  divided  into  classes  and 
departments.  Total  and  departmental  manufacturing  costs, 
buying,  selling  and  general  expenses.  Comparisons  by 
months,  seasons  and  years,  and  by  classes  of  goods  dealt  in. 


Industrial  Conditions.  Reports  as  to  labor,  buildings, 
machinery,  transportation,  efficiency  of  manufacturing  and 
selling  departments,  market  conditions,  etc. 

Commercial  Costs.  Furnished  by  the  accounting  and 
statistical  departments. 

Factory  Cost  System.  Costs  (labor,  material,  and  fac- 
tory expense)  of  each  kind  of  article  produced,  and  of  each 
job. 


Monthly  Balance  Sheet.    Jan.,  1916 


Commercial  Ledger 


Balance  Jan    1 

Monthly 

Balance 

Jan.  31 

Dr. 

Cr. 

Charges 

Credits 

Dr. 

Cr. 

16  Sales 

13,485 

60 

13,485 

60 

1  7  .Sales  Returns 

865 

20 

865 

20 

18  Sales  Allowances 

50 

00 

50 

00 

19  Outbound  Freight 

120 

00 

120 

00 

20  Trading 

13,047 

52 

13,047 

52 

22   Selling  Expenses 

1,120 

53 

1,120 

53 

23  General  Expenses 

1,180 

67 

1,180 

6/ 

24  Discount  on  Purchases 

165 

40 

165 

40 

25   Discount  on  Sales 

95 

00 

95 

CO 

26  Reserve  for  Bad  Debts 

125 

00 

64 

00 

70 

00 

131 

00 

21  Profit  and  Loss 

4,222 

28 

4,222 

28 

28  Accounts  Receivable 

6,000 

00 

13,485 

60 

10,949 

20 

8,536 

40 

29  Accounts  Payable 

6.250 

00 

15,515 

90 

19,499 

71 

10,233 

81 

30  Cash 

17,061 

00 

9,875 

00 

15,350 

50 

11,585 

50 

34  Capital  Stock 

100.000 

00 

100,000 

00 

35  Unissued  Stock 

15,000 

00 

15,000 

00 

36  Surplus 

5,000 

00 

1,518 

89 

6,518 

89 

38  Factory 

73,314 

00 

17,765 

57 

9,317 

77 

81,761 

80 

Total 

111,375 

00 

111,375 

00 

91,058 

27 

91,058 

27 

116.883 

70 

116,883 

70 

Factory 

^EDGER 

1    Material 

3,000 

00 

8,084 

32 

6,484 

32 

4600 

00 

2  Labor 

200 

00 

5.692 

28 

6,179 

07 

686 

79 

3  Building  Expenses 

508 

60 

508 

60 

4  Power 

841 

00 

841 

00 

5   Insurance 

828 

00 

72 

00 

756 

00 

6  Taxes 

1,095 

00 

94 

25 

1,000 

75 

7  Depreciation  Reserve 

1,240 

00 

328 

74 

1,568 

74 

8  Repairs 

589 

23 

589 

23 

9  General  Factory  Expenses 

467 

99 

467 

99 

10  Overhead,   A 

1.207 

34 

1,207 

34 

11    Overhead,  B 

1,431 

74 

1,431 

74 

12  Overhead,  C 

816 

35 

816 

35 

13   Reserve  for  Overhead 

273 

43 

273 

43 

14  Work  in  Process 

2,000 

00 

14,110 

99 

12,086 

13 

4,024 

86 

15  Finished  Goods 

3,754 

00 

) 
1 

12,086 
597 

13 
1? 

}   8,801 

53 

7,635 

72 

21   Shipping 

237 

19 

237 

19 

31-33  Real  Estate  and  Equipment 

66,000 

00 

66,000 

00 

37   Company 

73,314 

00 

9.317 

77 

17,765 

57 

81,761 

80 

Total 

74.754 

00 

74,754 

00 

58,184 

48 

58.184 

48 

84,017 

33 

84.017 

33 

"SYSTEMS"   AND   "RED  TAPE."    FUNDAMENTALS  OF  A   COST  SYSTEM 


97 


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98 


BOOKKEEPING  AND   COST  ACCOUNTING 
Factory  Ledger — Condensed 


Cbedit 

Accounts 

1 

2 

10 

II 

12 

13 

14 

15 

37 

Charge  Accounts 

Material 

Labor 

General 

Overheads 

Reserve 

Work 

Finished 

Com- 

Total 

Charges 

A 

B 

C 

for  Over- 
head 

in 
Process 

Goods 

pany 

Charges 

1    Material 

8,084 

!. 

8,084 

32 

2  Labor 

5,692 

It 

5692 

28 

General  Charges 

1,051 

0(1 

436 

bb 

3,079 

35 

4,567 

01 

10  Overhead,  Dept.  A 

246 

50 

770 

92 

84 

I. 

105 

60 

1,20/ 

34,/ 

1 1   Overhead,  Dept.  B 

251 

20 

1,055 

14 

125 

40 

1,431 

74^ 

12  Overhead,  Dept.  C. 

185 

70 

549 

15 

81 

50 

816 

35  v-- 

13  Reserve  for  Overhead 

119 

78 

153 

65 

273 

43  s/ 

14  Work  in  Process 

6,484 

32 

4,444 

67 

1,207 

u 

1,311 

96 

662 

70 

14,110 

99 

15  Finished  Goods 

12,086 

13 

597 

12 

12,683 

25 

37  Company 

6,484 

iJ 

07 

327 

13 

i4 

is 

189 

II 

• 

8,801 

53 

53 

57 

9.317 

77 

Total  Credits 

6,179 

3,139 

00 

1.207 

1,431 

7-' 

816 

273 

43 

12,086 

13 

8,801 

17,765 

58,184 

48 

Distribution  of  General  Charges  and  Overheads 

Credit  Accounts 


3 

4 

5 

6 

7 

8 

9 

21 

Charge  Accounts 

Building 

Power 

Insur 

Taxes 

Reserve 

Repairs 

General 

Ship- 

Total 

Labor 

General 

Expense 

ance 

for 
Depn. 

00 

Factory 
Expense 

ping 

Charges 

Credits 

Charges 

3  Building  Expenses 

84 

III 

12 

00 

20 

00 

40 

00 

65 

221 

IC 

185 

01 

221 

10 

4  Power 

8 

00 

10 

00 

40 

00 

58 

00 

300 

01 

58 

00 

8  Repairs 

2 

00 

2 

50 

13 

13 

17 

Hi 

356 

40 

17 

83 

9  General  Factory  Expenses 

76 

29 

76 

!• 

92 

61 

76 

29 

10  Overhead,  A 

101 

72 

252 

30 

12 

00 

15 

00 

75 

in 

159 

00 

155 

90 

770 

92 

1 1   Overhead,  B 

127 

15 

336 

411 

16 

00 

20 

00 

100 

00 

247 

80 

207 

79 

1,055 

14 

12  Overhead,  C 

101 

72 

168 

20 

7 

00 

8 

75 

43 

75 

115 

4! 

104 

il 

549 

is 

21    Shipping 

50 

86 

1 

00 

1 

25 

8 

33 

2 

00 

63 

44 

117 

OC 

63 

44 

37  Company 

50 

86 

14 

00 

16 

75 

8 

33 

* 

237 

19 

19 

327 

H 

1,051 

01 

436 

Total  Credits 

508 

60 

841 

00 

72 

in 

94 

25 

328 

74 

589 

23 

467 

237 

3,139 

Of 

bb 

Balance  of  General  Charges  Account 


Unbalanced  Accounts,   Factory  Ledger 


Insurance 

Taxes 

Reserve  for  Depreciation 

Dr.  Balance 
General  Charges  Dr.  in  Ledger 
General  Charges  Cr.  in  Ledger 


Dr 

Cr. 

Balance 

828 

00 

72 

00 

756 

00  Dr. 

1,095 

00 

94 

25 

1,000 

75  Dr. 

328 

74 

328 

24  Cr 

1,428 

01 

4,567 

01 

3,139 

00 

1,428 

01 

Dr. 


General  Charges 
Material 
Work  in  Process 
Finished  Goods 


1,428 

01 

1,600 

00 

2,024 

86 

3,881 

72 

8.934 

1 

59 

Company 
Labor 


8,447 
486 


8.934 


HO 

79 


K'l 


CHAPTER  XI 
DAILY  AND   MONTHLY   RECORDS.     CHARTING  OF   STATISTICS.    COST  OF  IDLENESS 


DAILY   RECORD   OF  WORK   IN   PROCESS.     NUMEROUS 
OPERATIONS  ON  ONE  PIECE. 

Form  NM1  shows  the  method  used  by  the  National  Meter 
Co.  for  keeping  track  of  the  number  of  pieces  of  one  kind 
through  a  sequence  of  several  operations.  The  figures  may 
require  some  explanation.  The  first  figure,  33,250,  is  the 
number  of  pieces  that  had  been  delivered  from  the  foundry 
from  the  beginning  of  the  order  (or  it  may  be  from  the  first 
of  the  year)  up  to  Nov.  23,  and  337  is  the  number  delivered 
on  that  day.  There  were  54  pieces  on  hand  at  the  first  ma- 
chine, No.  453,  and  the  337  added  make  391;    337  pieces 


were  drilled  and  passed  to  the  second  machine,  No.  475,  as 
entered  in  the  second  line  under  "  Received,"  leaving  a 
balance  of  54  remaining  to  be  drilled  on  the  following  day. 
The  figures  in  the  column  "  On  Hand  "  show  the  number 
of  pieces  at  the  several  machines  at  the  beginning  of  the 
day,  and  the  figures  under  "  Balance  "  the  number  of  pieces 
at  the  end  of  the  day;  which  figures  are  entered  in  the  "  On 
Hand  "  column  of  the  next  day.  Up  to  the  end  of  Nov.  24, 
from  the  beginning  of  the  order  33,937  castings  had  been  fur- 
nished, which  are  all  to  be  accounted  for;  1372  had  been 
rejected  as  defective,  and  2550  were  at  the  machines,  making 
30,015  parts  that  had  been  completed. 


(Size  8X5  in.) 

Part  No.  B  1786 


Stock  on  Hand  and  in  Process  at  End  of  Day 


in.         Bodies 


Date,  Nov.  23,  1915 


Time  on 
Machine 

Material 

Furnished 

33,250 

Material  in  Process 

Operation 

On  Hand 

Received 

Total 

Finished 

Defective 
1362 

Balance 

Parts 

Completed 

29,617 

Drill  C  Ho 

Edge  and  Face 
Chamfer 

1  Rough 
Reface 
Slotting 

2  Rough 
Finished  Cut 

453-2 
475-10 
213-4 
461-10 
476-10 
367    1 
69-10 
319-5 

337 
33.587 

54 
235 
0 
114 
317 
244 
889 
418 

337 
337 
220 
155 
210 
216 
60 
240 

391 
572 
220 
269 
527 
460 
949 
658 

337 
220 
155 
210 
216 
60 
240 
198 

7 

54 
352 
65 
59 
311 
400 
702 
460 

198 

1369 

2403 

29,815 

33.587 

Nov.  24, 

1915 

Drill  C  Ho 
Edge  and  Face 
Chamfer 

1  Rough 
Reface 
Slotting 

2  Rough 
Finished  Cut 

210-1 
475-10 
213  6 
461-10 
476-10 

69-10 
319-10 

350 
33,937 

54 
352 
65 
59 
311 
400 
702 
460 

350 
200 
215 
280 
206 
290 

235 

404 
552 
280 
339 
517 
690 
702 
695 

200 
215 
280 
206 
290 

235 
200 

3 

204 
337 
0 
133 
227 
690 
464 
495 

200 

1372 

2550 

30,015 

Form  NM1.     Daily  Record  of  Work  in  Process. 


From  these  daily  records  of  product  and  from  the  pay  roll      per  piece  for  each  operation,  as  shown  in   the  Comparative 
monthly  summaries  are  made  showing  the  direct-labor  cost      Cost  Record  Card  on  the  next  page. 

99 


100 


BOOKKEEPING  AND   COST  ACCOUNTING 


Monthly  Comparative  Cost  Record  Card 


Labor  Report  of  Pay  Roll  for  Week  Ending 


1916 


B-1786 


5/8 


Bodies 


Month  Ending  4/30/15 


Pieces 

Operator 

Time 

Rate 

Total 

Cost 

Operation 

Finished 

Cost 

Each 

Drill  Center 

Hole 

4092 

204 

24  % 

.24!£ 

$5.94 

001 

Edge  and  Fac 

3643 

16 

147 

•  24M 

36.02 

.009 

Chamfering 

3789 

149 

29 

161; 

Chamfering 

284 

6H 

.25 

Chamfering 

459 

27 

.16^ 

10.79 

.002 

First  Rough 

4077 

459 

161  1 

16;  2 

First  Rough 

149 

3 

I6'2 

27   14 

.006 

Refacing 

4095 

532 

217 

.23 

49  91 

.012 

Slotting 

4547 

367 

92  H 

.19 

17.58 

.003 

Second  Rough 

29B6 

50  i 

128 

21=4 

39  15 

.013 

Finish  Cut 

2953 

26 

137 

.25 

Finish  Cut 

506 

10 

.21 H 

36  43 

.012 

2953 

983 

$222  00 

$222  96 

$  058 

Form  NM2. 


A  perpetual  inventory  of  rough  and  of  finished  parts  is 
kept  on  8  X  5-inch  Cards. 


Part  No.  B.    1786 
Finished 


Bodies  Size    %  in. 
Rough 


Date 

Rec'd 

Del'd 

On  Hand 

Date 

Rec'd 

Del'd 

On  Hand 

1915 

1915 

11/20 

Forward 

6605 

1  1    20 

Forward 

1913 

29 

6576 

11.  23 

337 

1576 

11/22 

202 

52 

6778 
6726 

11,24 

350 

1226 

11/24 

200 

103 

7072 
6969 

' 

Form    NM3 


Monthly  reports  of  each  class  of  product  are  made  on  a  form 
printed  as  follows  on  typewriter  sheets  8§X13  inches,  two 
forms  to  a  sheet. 


Report  of    %  Type  K. 

AMD  P 

krts  From    1 1    27 

to   12'3I/16 

Cylinders 

Heads 

Pistons 

Bases 

Covers 

Bottom 

Top 

Symbol 

PI  786 

84508 

B1907 

3   48 

B1908 

Form  N'M4. 

The  side  headings  are  "  Rough  Stock,"  On  Hand,  Balance 
Forward;  "Received";  "Delivered";  "  Defective  Parts  "; 
"  Bal.  Rough  Stock  on  Hand";  and  these  headings  are 
repeated  for  "  Stock  in  Process,"  and  "  Finished  Stock," 
and  lines  are  also  given  for  total  stock  on  hand,  and  for  total 
output  and  distribution  from  the  beginning  of  the  year  to 
date  for  each  of  the  parts  of  the  machine  and  for  the  com- 
pleted machine. 

A  weekly  Labor  Report  is  made  on  two  typewritten  sheets 
in  the  following  form: 


Superintendence  Traffic 


Departments 

Employees  and 

Pro- 

Totals 

Maintenance 

duction 

Miscellaneous: 

Shipping  and  Trucking 

8 

162   60 

Cost  Dept. 

6 

123.37 

Meter  Stock  Room 

2 

36.45 

Engineer  and  Producer- 

man 

2 

61.50 

Electrician  and  Helper 

2 

57.60 

Fireman 

1 

20.25 

Stenographer  and  Office 

Boy 

2 

25.05 

Watchmen  (night) 

2 
6 

1 

45.75 

532  57 

Drafting 

78.90 
26  62 

78  90 

Repair — Foreman 

Bench  and  Machine  Hands 

18 
9 
5 
1 

290.32 

316.94 

Cap.  Dept. 

104.70 

104  70 

Japanning  and  Tinning 

93.37 

93.37 

Mr.  Brown — Foreman 

43.50 

Helpers  (sweepers) 

2 

24  75 

Bench  and  Machine  Hands 

42 

754.27 

822.52 

(Followed    by    the    figures 

for    other    foiemen    and 

their  bench  and  machine 

hands.) 

Mr.  Jones — Foreman 

1 

44.50 

3.50 

Toolmakers.  etc. 

20 

301 . 17 

182  08 

Press  Hands 

3 

1 

55.87 

587.12 

Mr   Smith — Foreman 

35    10 

Patternmakers 

5 

134.43 

169  53 

Millwrights: 

Millwrights,  etc. 

13 

204  48 

1    47 

Elevator  Operators 

4 

39  52 

245  47 

Machine  Dept.  A.     Totals 

A  similar  list  is  made  out  for  Dept.  B  and  for  the  Foundry. 
From  the  report  from  which  the  above  figures  were  taken  it 
appears  that  of  the  total  labor  cost  the  proportion  for  super- 
intendence traffic  and  maintenance  was  34  per  cent  in  Dept. 
A,  23  per  cent  in  Dept.  B,  and  7  per  cent  in  the  Foundry. 

In  this  factory  the  costs  of  the  individual  articles  made  are 
reported  only  for  material  and  for  labor  directly  engaged  in 
production.  The  apportionment  of  the  costs  for  superin- 
tendence, traffic  and  maintenance,  and  for  other  items  of 
burden  or  overhead,  to  the  different  products  is  left  to  the 
general  office. 

WEEKLY   AND   MONTHLY   COST   PERIODS 

The  fact  that  in  our  yearly  calendar  the  lengths  of  the 
months  vary  is  the  occasion  of  some  difficulty  to  cost  account- 
ants. Pay  rolls  are  usually  made  for  a  week's  time,  while 
bills  for  goods  purchased  are  either  rendered  monthly  or  else 
monthly  statements  are  made  out  giving  the  totals  of  the  bills 
of  goods  purchased  during  the  month.  Salaries  are  also 
commonly  paid  in  monthly  instalments.     It  is  convenient  for 


DAILY  AND   MONTHLY  RECORDS.    CHARTING   OF  STATISTICS.    COST  OF  IDLENESS 


101 


statistical  purposes  to  compare  the  cost  and  output  figures  of 
one  month  in  the  year  with  those  of  other  months  or  with 
those  of  the  corresponding  month  in  the  previous  year,  but  a 
calendar  month  may  contain  four  full-week  pay-roll  periods, 
or  four  weeks  plus  from  1  to  3  days,  or  three  or  four  full 
weeks  plus  one  or  more  days  at  the  beginning  of  the  month 
and  other  days  at  the  end.  If  the  pay-roll  week  ends  on 
Saturday  night  the  calendar  month  may  cover  parts  of  six 
pay  rolls,  for  example,  in  July,  1916,  which  began  on  Satur- 
day it  would  include  one  day,  July  1,  four  full  weeks,  July 
2-29,  inclusive,  and  two  days  July  30  and  31. 

There    are    several    ways    of    minimizing    the    difficulty: 

1.  The  pay  roll  may  be  made  out  for  calendar  months,  and 
all  statistics  kept  by  these  months.  The  total  output  of 
product  (tons,  yards,  etc.),  or  the  total  cost  of  this  product 
may  be  divided  by  the  number  of  days  in  the  month  to  obtain 
average  daily  product  or  the  average  daily  cost. 

2.  The  pay  rolls  may  be  for  weeks  while  the  statistics  may 
be  for  months,  the  pay-roll  figures  for  the  odd  days  outside  of 
the  three  or  four  full  weeks  being  computed  separately  and 
added  to  the  figures  of  the  full  weeks  in  order  to  obtain  the 
monthly  labor  costs. 

3.  The  pay  rolls  may  be  weekly  and  the  expense  or  burden 
charges  and  the  statistics  for  calendar  months,  some  months 
including  four  payrolls  and  some  five;  and,  in  case  the  year 
does  not  begin  the  same  day  that  the  weekly  pay  roll  begins, 
the  labor  costs  of  the  months  of  January  and  December 
would  include  four  weekly  pay  rolls  plus  portions  of  the  pay 
rolls  at  the  beginning  or  end  of  the  year  or  both. 

4.  The  year,  for  statistical  purposes  may  be  divided  into 
four  thirteen-week  periods,  the  first  day  of  the  first  pay-roll 
week  being  the  first  day  of  January.  In  this  way  the  pay- 
roll week  would  begin  on  a  different  day  in  different  years. 

5.  In  like  manner,  the  year  may  be  divided  into  thirteen 
four-week  periods. 

6.  The  pay-roll  period  may  be  a  "  pay-roll  week  "  made  by 
dividing  the  calendar  month  into  four  parts  as  nearly  equal 
as  possible.  In  some  large  works  these  "  weeks  "  end  on  the 
8th,  15th  and  22d,  and  on  the  28th  to  the  31st  of  the  month, 
according  to  number  of  days  in  the  month.  Thus,  the  first 
period  would  be  of  eight  days  of  which  either  one  or  two  would 
be  Sunday,  the_ second  and  third  periods  would  be  each  seven 
days,  including  one  Sunday,  and  the  fourth  period  would,  in 
January,  be  of  nine  days  with  one  or  two  Sundays,  and  in 
February  of  a  year  not  a  leap  year,  only  six  days,  one  of 
which  might  be  a  Sunday. 

The  third  of  the  above-described  methods  is  probably  the 
most  common.  It  has  the  disadvantage,  for  statistical  pur- 
poses, of  showing  the  monthly  output  and  monthly  labor  cost 
to  be  sometimes  for  four  weeks  and  sometimes  for  five,  and 
of  inaccuracy  in  the  monthly  distribution  of  burden,  the 
charges  to  burden  account  being  in  some  cases  (indirect  labor), 
for  four  or  five  weeks,  and  in  others  (salaries  supplies  and 
work  by  outside  parties),  for  the  calendar  month,  while  the 
credits  (work  in  process  and  finished  product)  are  for  four  or 
five  weeks. 

The  following  is  an  example  of  accounting  by  this 
method : 


Memoranda  from  which  Journal-Ledger  Entries  are  Made 


Charge 


Stores 


Work  in 
Process 


Work  in 
Process 


Burden 

Burden 
Burden 


Credit 


To  Company 

To  Labor 

To  Stores 

To  Labor 

To  Stoiea 
To  Company 


Amount 


$2500 


2500 


1800 

300 
300 


F<»r  materials  purchased  during  the 
month,  the  bills  being  certified 
to  Company  for  payment ,  aa 
per  Invoice  Register. 

Direct  labor,  as  per  job  tickets  and 
pay  rolls  for  4  weeks  ending 
Jan.  28. 

.Material  delivered  to  shop,  charged 
on  job  tickets  or  stores  issue 
cards,  for  4  weeks. 

$1200  indirect  labor,  from  pay  roll 
for  4  weeks,  $600  salaries  for 
month. 

Supplies  for  power  plant  and  shop, 
for  month. 

For  repair  work  done  on  plant  by 
plumbers,  etc.,  as  per  their 
monthly  bills  certified  lor  pay- 
ment, $200. 

For  charges  from  Company's  books, 
monthly  proportion  of  taxes, 
insurances,  depreciation,  water 
rent,  etc.,  $100. 


Finished  Product 
To  Work  in  Piocess 

To  Labor 

To  Stores 

To  Burden 

Work  in  Process: 

To  Burden 

Company  to  Finished  Product 

Labor  to  Company 


2800 

100 

100 

100  . 

2100 

2000 

4200 


For  goods  transferred  from  shop  to 
warehouse,  for  month 


Packing  and  shipping,  as  per  job 
tickets,  for  4  wcks 


For  burden  charged  on  job  tickets 
for  work  done  in  shop,  4  weeks. 

For  Goods  shipped,  at  factory  cost, 
du -ing  month. 

For  payments  on  account  of  pay 
rolls 


Journal-Ledger. 

January 

Credit  Accounts 

Charge 

Com- 

Stores 

Labor 

Burden 

Work 

Fin. 

Total 

pany 

in 
Proc. 

Prod 

Dr. 

Stores 
Labor 
Burden 

2500 

4200 

300 

300 

1800 

2,500 
4,200 
2.400 

Work  in  Process 

800 

2500 

2100 

5,400 

Finished  Product 

100 

100 

100 

2800 

3,100 

Company 

:ooo 

2,000 

Total  Cr. 

7000 

1200 

4400 

2200 

2800 

2000 

19.600 

Totals  and  Balances 

Dr. 

Cr. 

Dr. 

Cr. 

Stores 

Labor 

Burden 

Work  in  Process 

Finished  Product 

Company 

2,500 
4,200 
2,400 
5,400 
3,100 
2,000 

1,200 
4,400 
2,200 
2,800 
2,000 
7,000 

1300 

200 
2600 
1100 

200 
5000 

19,600 

19,600 

5200 

5200 

102 


BOOKKEEPING  AND   COST  ACCOUNTING 


All  of  the  accounts  in  the  above  balance  sheet  represent 
assets  except  the  $5000  liability  of  the  factory  to  the  Com- 
pany, the  $200  liability  to  Labor  (wages  unpaid),  and  the 
$200  debit  to  Burden  account,  which  represents  undistributed 
burden.  Part  of  this  amount  is  due  to  the  fact  that  some  of 
the  debits  to  this  account  are  for  the  whole  month  while  all 
of  the  credits  are  only  for  four  weeks,  and  in  other  months 
when  the  credits  are  for  five  weeks  the  debit  balance  may  be 
canceled  and  a  credit  balance  take  its  place.  If  the  burden 
had  been  computed  for  the  extra  days  beyond  the  four  weeks 
the  account  might  have  been  debited,  say  $200  more  for 
Labor  and  credited  say  $300  more  by  Work  in  Process,  which 
would  have  reduced  the  debit  balance  to  $100.  At  the  end 
of  the  year  or  fiscal  period  it  is  necessary  to  make  the  entries 
for  the  days  of  the  month  that  may  remain  beyond  the  end 
of  the  pay-roll  week,  so  that  Burden  account  may  be  balanced 
properly  and  the  balance,  debit  or  credit  as  the  case  may  be, 
closed  into  Profit  and  Loss. 

The  sixth  method,  that  of  dividing  each  month  into  four 
pay-roll  periods,  ending  on  the  8th,  15th,  22d,  and  28th  to 


31st,  is  probably  the  most  satisfactory  for  cost  accounting, 
as  it  enables  all  the  debits  and  credits  of  Burden  to  be  made 
for  the  full  month,  and  avoids  the  trouble  of  making  com- 
putations for  the  extra  days  beyond  the  weekly  periods. 

The  Cost  Period.  It  is  advisable  to  have  the  cost  period  coin- 
cide with  the  pay  roll  periods  as  far  as  practicable,  so  that  the 
closing  days  will  agree.  That  is  if  the  men  are  paid  by  the  week 
the  cost  period  may  be  four  or  five  weeks.  In  this  way  calcu- 
lations of  wages  not  yet  paid  will  be  avoided  and  the  distribution 
of  costs  simplified. — Nicholson. 

MONTHLY  RECORD  OF  PROGRESS  IN  A  FACTORY 

The  monthly  progress  of  the  business  is  not  shown  by  the 
monthly  totals  of  the  entries  charging  and  crediting  Stores 
or  Work  in  Process,  since  many  of  these  entries  represent 
mere  changes  in  location  of  material,  but  only  by  the  credits 
of  Labor  and  Burden  accounts  charged  to  Work  in  Process 
and  by  the  record  of  man-hours  worked  per  month.  This  is 
illustrated  by  the  following  table  of  four  months'  entries  to 
the  principal  factory  accounts. 


Credit  Accounts 


Charge  Accounts 

Accounts 
Payable 

Labor 

Burden 

Stores 

Work  in 
Process 

Warehouse 

Total 
Dr. 

Stores 

Dr.  Jan. 
Feb. 
Mar. 
Apr. 

1,000 
5,000 
2,000 
2,000 

3,000 
1.000 
1,000 
4,000 

4,000 
6,000 
3,000 
6,000 

Burden 

Dr.  Jan. 

1,000 

2,000 

1.500 

4,500 

Feb. 

500 

2,000 

1,500 

4,000 

Mar. 

500 

2,000 

1,500 

4,000 

Apr. 

500 

2,000 

1,500 

4,000 

Work  in  Process 

Dr.  Jan. 

3,000 

3,500 

5,000 

11,500 

Feb. 

3,500 

4,000 

2,000 

9,500 

Mar. 

4,000 

4,500 

4,000 

12,500 

Apr. 

4,000 

4,500 

3,000 

11,500 

Warehouse 

Dr.  Jan. 
Feb. 
Mar. 
Apr. 

5,000 
10,000 
8,000 
9,000 

5,000 
10,000 
8,000 
9,000 

Sales 

Dr.  Jan. 
Feb. 
Mar. 
Apr. 

4,000 
9,000 
10,000 
1 2,000 

4,000 

9,000 
10,000 
12,000       * 

147,500 

Total  Credits 

12,500 

22,500 

16,500 

20,000 

41,000 

35,000 

The  sum  of  Labor  and  Burden  charged  to  Work  in  Process 
is  for  the  four  successive  months  $6500,  $7500,  $8500, 
$8500.  This  is  a  better  record  of  the  progress  of  the  business 
than  is  given  by  any  of  the  other  accounts,  all  of  which  show 
great  fluctuations  on  account  of  movements  of  material  and 
changes  of  balances,  which  do  not  represent  quantity  of  work 
done.  The  difference  between  the  charges  and  credits  of 
Burden  account  is  a  most  important  index  of  factory  condi- 
tions, the  charges  showing  the  monthly  cost  of  burden  and 
the  credits  the  amounts  of  normal  burden  charged,  on  the 
machine-hour  rate  basis,  to  the  cost  of  product.  The  dif- 
ference between  the  two  represents  the  unearned  or  over- 


earned  burden,  as  the  case  may  be.  The  former  indicates 
factory  losses  due  to  idle  machinery ;  the  latter  factory  gains 
on  account  of  machinery  being  fairly  well  employed.  The  dif- 
ference for  the  four  months,  according  to  the  above  table  are 
as  follows : 


Jan. 

Feb. 

Mar. 

April 

Total 

Burden  Acct. 

Dr. 
Cr. 

4500 
3500 

-1000 

4000 
4000 

0 

4000 
4500 

+  500 

4000 
4500 

+   500 

116,500 
16,500 

Gain,  plus,  or 
Loss,  minus 

0 

DAILY  AND   MONTHLY  RECORDS.    CHARTING   OF  STATISTICS.    COST  OF  IDLENESS 


103 


Here  is  a  way  of  tabulating  the  totals  of  the  Journal-  ance  of  stores  of  all  kinds,  also  with  payments  of  Labor  and 
Ledger  so  as  to  show  balances,  and  also  transactions  with  Accounts  Payable,  and  charged  with  shipments  from  ware- 
Company  Account,  Company  being  credited  with  the  bal-      house: 

Factory  Accounts 


Balance 

Jan. 

Fob. 

Mar. 

Apr. 

Total 

Dr. 

Jan.   1 

4  Months 

Balance 

1  Dr. 

Storea                        {  C[ 

44.000 

4,000 
6,500 

6,000 
3,500 

3,000 
3,500 

6,000 
4,500 

19,000 
20,000 

43,000 

Burden                     {  p 

4,500 
3,500 

4,000 
4,000 

4,000 
4,500 

4,000 
4,500 

16,500 
16,500 

Work  in  Process     \  „ 

35,000 

11,500 
8,000 

9,500 
1 1 ,000 

12,500 
9,000 

11,500 
13,000 

45,000 
41,000 

39.00U 

Warehouse              |Cr 
Company  Cr. 

39,000 

5,000 
4,000 

10.000 
9,000 

8,000 
10,000 

9,000 
12,000 

32.000 
35,000 

36,000 

118,000 

Con 

pany  ( !i 

118,000 

The  "  Total  4  mos."  column  may  be  omitted,  and  balance 
columns  may  be  inserted  after  each  month's  column  instead, 
if  it  is  desired  to  show  the  balances  of  the  several  accounts 
each  month. 

Company  Accounts 


Jan. 

Feb. 

Mar. 

Apr. 

4  moa. 

Labor 
Accts.  Pay. 

Cr.  Co. 
Cr.  Co. 

Co.  Dr. 

5000 
2000 

5,500 
5,500 

6.000 
2,500 

6,000 
2,500 

22.500 
12.500 

Sales 

7000 
4000 

1  1 ,000 
9.000 

8,500 
10,000 

8.500 
12,000 

35,000 
35,000 

THE   CHARTING   OF   COSTS. 
PRINCIPLE 


THE   EXCEPTION 


One  of  the  results  of  a  good  costing  and  accounting  system 
is  a  series  of  statistical  tables  for  the  use  of  the  executives. 
The  study  of  these  tables  leads  to  better  planning  of  factory 
policies.  But  tables  of  figures  are  dreary  things;  the}'  are 
often  difficult  to  interpret,  and  haste  in  interpreting  them  is 
apt  to  lead  to  wrong  conclusions.  Important  statistical 
tables    should    be    diagrammed   on    cross-section    paper   or 


"  charted."  The  cost  system,  with  its  accompanying  charts 
should  determine  and  show  the  following.  (F.  B.  Gilbreth, 
Jour.  A.  S.  M.  E.  April,  1917.) 

1.  What  the  quantities  of  individual  outputs  should  be 
(prophecies  of  outputs). 

2.  Prompt  records  of  individual  outputs. 

3.  What  the  costs  should  be  (prophecies  of  costs). 

4.  Prompt  records  of  costs. 

5.  Causes  of  fluctuations  and  deviations  of  outputs  and 
costs  from  prophesied  outputs  and  costs. 

Mr.  Gilbreth  emphasizes  the  value  of  "the  exception  prin- 
ciple" in  connection  with  the  executives'  study  of  charts- 
He  says: 

No  executive  should  make  a  routine  motion  of  handling,  turn- 
ing over  or  examining  charts  containing  data,  either  normal,  or 
with  considerable  deviation  from  normal,  where  the  causes  of 
the  deviation  can  lie  handled  properly  by  those  in  lower  execu- 
tive positions.  The  exclusion  of  such  cases  can  be  obtained 
by  having  the  executive  determine  zones  on  the  charts,  it  being 
understood  that  as  long  as  the  points  fall  within  the  zone  he  is 
not  to  see  the  charts  unless  he  specially  requests  to  see  them. 

This  is  the  "  exception  principle,"  that  the  chief  executive 
should  concern  himself  only  with  exceptional  matters,  that 
are  outside  of  the  zones  of  normal,  everyday  work. 


DIAGRAM    OF   THE   ACCOUNTING    SYSTEM 
Company's  Books,  Accounts  Relating  to  Factory 


A 

B 

C 

Permanent  Investment  Accounts 

Expense  Accounts 

Manufacturing  and  Factory  Operating  Account 

Balance 

Land 

Buildings  and  Fixtures 
Machinery  and  Equipment 
Office  Furniture  and  Fixtures 

Taxes  Paid 
Insurance  Paid 
Reserve  for  Depreciation 
Administrative  Expense 

(portion  charged  to  Factory) 
Interest  charged  to  Factory 

Dr. 

To  Cash,  for  Pay  Roll  and 
Petty  Cash 

To    Accounts  Payable,   for 
purchases  on   factory   ac- 
count 

To  Expense,  t~2  of  B  each 
month 

To   Factory,  gains  on  over- 
earned   burden,   or  appre- 
ciation of  assets 

Cr. 

Factory  Cost  of  Goods 
shipped  from  factory 

Factory  Losses  assumed  by 
Company  and  not  charged 
to  cost  of  product,  such 
as  unearned  burden,  de- 
preciation of  assets 

The  balance  of  Manufac- 
turing Account  includes 
the  current  assets  of  the 
factory,  via: 

Stores 

Work  in  Process 

Dr. 
For  Cost  or  Ap- 
praised Value 
and    Cost    of 
Betterments 

Cr. 

By  Proceeds 
of  Sales 

By  deprecia- 
tion. 

Dr. 
For  Actual  Ex- 
penditure 

Cr. 

By    Factory 
Operating 
Acct.    each 
month— y^" 

Finished     Goods    in    Ware- 
house 

(Chg.  Res. 
for  Depn.) 

of  annual 
exnense 

104 


BOOKKEEPING  AND   COST  ACCOUNTING 

Factory  Books 


Company  Account 

Stores 

Labor 

Burden 

Work  in  Process 

Warehouse 

Dr. 

Dr. 

Dr. 

Dr. 

Dr. 

This  account  is  the  reverse 

For  Cost,  including 

For  payments  of  wages, 

For  all  indirect  expend- 

For Direct  Labor,  and 

For     Factory     Cost     of 

of  Account  C  above 

freight  and  other  ex- 

salaries, etc. 

itures,    cash,   labor  or 

Direct  Material  from 

goods   made    and    for 

Cr.    Company    for    Cash 

pense  of  all  materials 

supplies  that    cannot 

stores,    and    for    bur- 

expenses of  warehouse 

and  materials  received, 

and  supplies  received 

be  charged  directly  to 

den  charged  to  cost  of 

and  forExpense  charged 

cost  of  product 

work 

by  Company 

Debit  for  goods  shipped, 

Cr. 

Cr. 

Cr. 

Cr. 

Cr. 

and    for    other    values 

For   all    material    used 

Credits  of  labor  on  pay 

By  the  several  alloca- 

By Factory  Cost  of  goods 

By  Factory  Cost  (includ- 

charged to  Company 

by    the    factory   and 

rolls  and  salary  lists 

tions  of  burden  to  Cost 

put  in  Warehouse,  and 

ing  expense)   of  goods 

charged   to  Work    in 

by    betterment     work 

shipped  on  Company's 

Process     or     Burden 

charged  to  Company 

account 

Accounts 

Diagram  of  Annual  Exhibit 

The    accompanying    diagram,    Fig.    2,    shows    a    useful 

method  of  presenting  the  relative  volume  of  business  done 

in  different  classes  of  product,  with  the  cost  of  material, 

labor,  burden  and  selling  expense,  and  the  profit  on  each, 


both  in  dollars  and  in  percentages.  Horizontal  distances 
are  made  proportional  to  the  percentages  of  volume  of 
business  and  vertical  distances  to  percentages  of  factory 
cost;  areas  are  proportional  to  the  several  items  of  expend- 
iture and  profit. 


ABC 

2   2      4 


Classes  of  Product 
E  F  G  H  I 

Volume  of  Business,  per  cent  of  Total  Factory  Cost 

8  10  14  16  18 


J 
20 


Totals  100 


10 

20 

30 

40 

«    50 
us 

°    60 

&    7° 

o    80 

S    90 
u 
~  100 

0 

-  110 

§120 

6«  140 
150 
160 
170 
180 


1,200 


2,100 


2,700 


1,200 


4,400 


1.000 


5,000 


4,000 


Material 

,100 


Labor 

4,900 


Burden 

r.ooo 


Factory  Cost: 


1,600 


8,000 


6,400 
100  per  cent 


2.700 


8,100 


7,200 


-.inn 


7,000 


Material 
17,200 


Labor 

43,300 


Burden 

39,500 


a'  h      01 


6,000 
2,700 


8,000 
2,800 


10,000 
4,500 


14,000 

Cost  of 

4,900 


16.000 


Selling 


8,800 


18,000 
7,200 


Profit 

2,000 


2,700 


1,200 


2,500 


21,000 


1,900 


12.1 


20 


12,800 


15.6 


25 


1.600 


27,900 


17,000 


26,400 


20,000 
10,000 


Profit 

5,000 


Selling  Price  35,000 

Profit  per  cent  of  Selling  Price 

14.7  10.0  6.1  9.7  14.3 

Profit  percent  of  Factory  Cost 
25  15  10  15  25 

Fig.  2. — Diagram  of  Volume  of  Business,  Costs  and  Profits. 


100,000 

Cost  of  Selling 

44,400 


Profits 

19,000 


163.100 
11.6 

19 


The  value  of  such  a  diagram  depends  entirely  upon  the 
use  that  is  made  of  it.  The  cost  system  is  complete  without 
it,  and  it  is  of  no  benefit  to  the  management  unless  it  is 
studied  and  acted  upon.  A  progressive  manager  on  receiv- 
ing such  a  diagram  from  the  chief  accountant  would  probably 
at  once  notice  that  Class  H  showed  a  profit  of  only  $1600 
out  of  the  total  profits  of  $19,000,  and  that  the  profit  was 
only  10  per  cent  of  the  factory  cost  and  6.1  per  cent  of  the 
selling  price.  He  would  then  start  an  investigation  as  to 
what  might  be  done  in  order  to  insure  that  a  better  showing 


might  be  made  in  the  following  year.  The  investigation 
would  include  a  study  of  the  possible  results  of  several 
actions  that  might  be  taken,  viz. :  advance  of  prices,  lowering 
of  costs  of  selling,  burden,  labor,  material.  He  would  then 
notice  that  Classes  A,  B  and  C  showed  profits  respectively 
of  only  $700,  $400  and  $800,  due  not  to  low  percentages  of 
profits  but  to  small  volume  of  business,  and  might  then 
take  steps  to  increase  the  sales  of  these  classes. 

Cost  accounts  are  of  little  value  if  they  do  not  lead  to 
action. 


DAILY  AND  MONTHLY  RECORDS.    CHARTING   OF  STATISTICS.    COST  OF  IDLENESS 


105 


IDLENESS   CHARTS  * 

There  are  many  methods  of  cost  accounting;  but  there  are 
only  two  leading  theories  as  to  what  cost  consists  of.     They  are: 

First,  that  the  cost  of  an  article  must  include  all  of  the  expense 
incurred  in  producing  it,  whether  such  expense  actually  con- 
tributed to  the  desired  end  or  not. 

Second,  that  the  cost  of  an  article  should  include  only  those 
expenses  actually  needed  for  its  production,  and  any  other 
expenses  incurred  by  the  producers  for  any  reason  whatever 
must  be  charged  to  some  other  account. 

The  first  theory  would  charge  the  expense  of  maintaining  in 
idleness  that  portion  of  a  plant  which  was  not  in  use  to  the  cost  of 
the  product  made  in  that  portion  of  the  plant  which  was  in  opera- 


tion; while  the  second  theory  would  demand  that  such  expense  be 
a  deduction  from  profits.  When  plants  are  operated  at  their 
full  capacity,  both  theories  give  the  same  cost.  When,  however, 
they  are  operated  at  less  than  their  full  capacity,  the  expense  of 
carrying  the  idle  machinery  is,  under  the  first  theory,  included 
in  the  cost  of  the  product,  making  the  cost  greater;  while  under 
the  second  theory,  this  expense  of  idle  machinery  is  carried  in  a 
separate  account  and  deducted  from  the  profits,  leaving  the  cost 
constant.  When  costs  arc  figured  on  the  second  basis,  great  acta  ity 
immediately  ensues  to  determine  why  machinery  is  idle,  and  to  see 
what  can  be  done  to  put  it  in  operation.  It  is  realized  at  once  that 
this  machinery  had  better  be  operated,  even  if  no  profits  are 
obtained  from  its  operation  and  only  the  expense,  or  even  part 
of  the  expense,  of  maintaining  that  machinery  is  earned. 


MILL, 

Textile 

.Tunc, 

191  <L_ 

Symbol 

Department  or 
Mach.  Class 

%  of  Capacity  used  on  .  r>"J'    Turn 
10     20     30     40     50    60     70     SO     90 

Total 

Expense  of 

Idleness 

Details  of  Idleness  Expense  Dire  to 

Remarks 

Lack  of 
Work 

Lack  of 
Help 

Lack  of 
and  Poor 
Material 

Repaiis 

Poor 

Planning 

Spinning 

1      1      1      1      !      1      l 

18 

18 

70 

■      ■      ■■      :         \ 

70 

Winding 

118 

;i 

103 

74 

15 

.«, 

J      ;      >      t            u 

Doubliug 

11) 

61 

10 

61 

■>;•-,  A 

Twisting 

1? 

95 

17 

95 

<      :      i      •        1 

Quilling 

20 

r,7 

10 

07 

10 

llll 

i      -,     i      ;                  ;  t 

Warping 

390 

75 

390 

75 

Lack  of  Wound  Yarn 

:         1 

Weaving 

915 

25 

75 

mi 

SIO 

25 

Lack  of  Warps 

l      '•      i  ■•  ■<      >| 

Finishing 

210 

72 

210 

72 

Lack  of  Woven  Goods 

:'..,     1 

Inspecting 

49 

70 

10 

70 

39 

00 

Lack  of  Woven  Goods 

:      :      .      .      ■          1 

Shipping 

21G 

IT 

00 

00 

150 

17 

Lack  of  Woven  Goods 

Total 

19C9 

20 

198 

93 

124 

44 

1630 

39 

15 

00 

'- 

! 

Approved  by 

Supt. 

Patent  Applied  For 


Fig.  3. — Gantt's  Idleness  Chart. 


Fig.  2  illustrates  this  subject  most  clearly.  Charts  of  this 
nature,  which  are  being  made  monthly  in  several  large  plants, 
have  already  had  a  very  educational  influence  on  the  managers 
of  those  plants.  They  show  that  idle  machinery  which  cannot 
be  used  should  be  disposed  of,  and  the  money  received,  and  the 
space  occupied,  put  to  some  useful  purpose. 

If  now  the  cause  for  idleness  is  ascertained  each  day  we  can 
find  the  expense  of  each  cause  of  idleness  as  shown  on  the  chart. 
That  part  which  is  due  to  lack  of  orders  points  out  that  our  selling 
policy  is  wrong,  or  that  the  plant  is  larger  than  it  should  be — in 
other  words  that  somebody  in  building  the  plant  has  over- 
estimated the  demand.  It  is  clear,  however,  that  no  conclusion 
should  be  based  on  the  figures  for  one  month,  but  on  the  results 
for  a  series  of  months  during  which  the  problem  has  been  carefully 
studied. 

Expense  due  to  lack  of  help  means  that  we  must  investigate 
the  labor  policy. 

Expense  due  to  lack  of,  or  poor  material,  is  an  indication  of 
the  efficiency  of  the  purchasing  policy  and  storekeeping  system. 

If  in  any  case  the  expense  of  idleness  is  greater  than  can  be 
attributed  to  all  of  these  causes  together,  it  must  go  in  the  last 
column  as  poor  planning! 

*  Extract  from  a  paper  by  H.  L.  Gantt,  on  "Productive  Capacity  a 
Measure  of  Value  of  Industrial  Property."     Trans.  A.  S.  M.  E.,  1916. 

t  It  may  be  due  to  panic  or  general  business  depression,  something 
for  which  the  owners  of  the  concern  are  not  responsible.  It  may  also 
be  due  to  permanent  decrease  of  demand  for  the  product  caused  by 
competition  of  other  products,  as  in  the  cases  of  automobiles  replacing 
horse-drawn  vehicles,  and  of  steam  turbines  replacing  reciprocating 
engines. — W.  K. 


Mr.  Gantt  is  undoubtedly  correct  in  favoring  the  second 
one  of  the  two  theories  as  to  what  cost  consists  of,  but  some 
question  may  be  raised  as  to  what  are  "  the  expenses  actually 
needed  for  the  production  of  the  article,"  and,  whether, 
under  some  conditions,  it  is  not  right  to  charge  some  of  the 
cost  of  idle  machinery  to  the  cost  of  an  article.  It  may  be 
that  the  nearest  approximation  to  true  costs  will  be  found 
in  a  compromise  between  the  two  theories.  In  many  lines 
of  business  it  is  not  the  cost  of  a  certain  article  that  has  to  be 
determined  or  estimated,  but  that  of  hundreds  or  thousands 
of  different  kinds  of  articles,  finished  and  unfinished,  in  order 
to  obtain  reasonably  correct  inventory  valuations  and  profit 
and  loss  estimates.  In  that  case  it  is  impossible  that  every 
department  and  every  machine  can  be  run  every  day  at  its 
full  capacity,  or  that  the  machine  equipment  can  be  so  nicely 
apportioned  to  the  orders  on  hand  that  no  machines  are  ever 
idle.  In  the  textile  mill,  the  idleness  chart  of  which  is  shown, 
it  may  be  possible,  if  the  mill  is  a  large  one  and  makes  only  one 
style  of  goods,  so  to  balance  the  machinery  that  none  of  it  is 
idle  more  than  say  10  per  cent  of  the  time,  but,  if  many  dif- 
ferent styles  are  made,  the  demand  for  which  varies  with 
the  season  and  with  the  fashion,  the  weaving  machines 
may  be  running  full  time  and  not  be  able  to  take  the 
whole  capacity  of  the  spinning  machines,  some  of  which 
would,    therefore,  have  to  be  idle  part  of  the  time;  and  it 


106 


BOOKKEEPING   AND   COST  ACCOUNTING 


may   not   be  possible   to   utilize  the  full  capacity  of   the 
inspecting  and  finishing  departments. 

The  "  expense  actually  needed  "  for  the  production  of  a 
variety  of  articles  may  thus  include,  at  least,  part  of  the  idle 
time  of  some  machines  which  must  be  kept  in  the  factory  to 
meet  a  varying  demand,  but  which  cannot  be  kept  contin- 
uously employed,  and  hi  such  a  case  it  is  right  to  charge  some 
of  the  cost  of  idleness  into  the  "  normal  burden  "  which  is 
distributed  in  the  machine-hour  rate  to  the  cost  of  the  goods. 
The  machine-hour  rate  should  be  figured  once  a  year,  after 
studying  the  statistics  of  preceding  years,  for  each  machine, 
and  it  should  include  an  allowance  for  the  average  or  normal 
time  that  the  machine  may  be  expected  to  be  idle  during  the 
coming  year.  If  the  actual  idleness  time  hi  the  ensuing  year 
is  greater  than  the  amount  estimated,  the  excess  should  not 
be  apportioned  to  the  cost  of  goods  in  any  one  month,  or  in  a 
year,  but  should  be  charged  to  profit  and  loss,  either  directly 
or  through  a  subordinate  account,  such  as  "  Loss  due  to 
Idleness  of  Plant." 

A  modification  of  Mr.  Gantt's  idleness  chart  is  thus  sug- 
gested in  order  to  show  how  much  of  the  idleness  of  a  machine 
or  department  is  normal  and  necessary  to  the  conduct  of  the 
business,  and  how  much  is  abnormal  or  excessive.  This 
may  be  made  by  drawing  vertical  lines  on  the  chart  indicating 
the  normal  percentags  of  full  capacity  which  each  machine 
or  department  is  expected  to  run  during  a  month  of  good 
business.  In  the  chart  shown,  Fig.  3,  doubling  might  have 
such  a  line  at  70  per  cent  and  twisting  at  75  per  cent,  showing 
the  excess  idleness  of  doubling  to  be  22  per  cent  as  compared 
with  52  per  cent  total  idleness,  and  the  excess  idleness  of 
twisting  22  per  cent  as  compared  with  the  47  per  cent  shown 
on  the  chart. 

The  most  important  function  of  Mr.  Gantt's  idleness  chart 
is  not  that  it  is  a  historical  record  of  what  happened  during 
the  past  month,  not  a  mere  statement  of  what  was  the  cost  of 
idleness  in  that  and  in  preceding  months:  it  is  that  it  is  an 
exhibit  of  inefficiency  which  will  stimulate  the  managers 
of  the  business  to  action.  It  leads  to  investigation  of 
the  causes  of  idleness  and  to  the  finding  of  methods  to 
remedy  it. 


IRON  WORKS  STATISTICS-GRAPHICAL  PRESENTATION 

The  accompanying  table  and  chart,  Fig.  4,  taken  from  a 
paper  on  "  A  Decade  of  Progress  in  Reducing  Costs,"  by 


Fig.  4. — Ikon  Works  Statistics. 
Chas.  Kirchhoff  (Trans.  Am.  Inst.  Mining  Engrs.,  1S99), 
show  the  relative  percentages  of  the  several  items  entering 
into  the  cost  of  a  ton  of  pig  iron,  taking  the  costs  in  the  year 
1S99,  a  year  of  high  profits,  at  100  per  cent.  The  method  of 
presentation  is  one  that  may  be  found  useful  in  many  indus- 
tries. The  chart,  which  is  made  by  plotting  the  figures  of 
the  table,  shows  the  fluctuations  and  general  tendencies  of 
costs  much  more  clearly  than  do  the  figures  themselves . 


DAILY  AND   MONTHLY  RECORDS.     CHARTING  OF  STATISTICS.    COST  OF  IDLENESS 


107 


FlOCRE    FLUCTUATIONS    IN    COST    OF    PRODUCTION    OP    PlQ    IRON. — SOUTHERN    PLANT 

Comparative  Statement  of  Pig-iron  Costa  for  the  Year  1839  to  1898,  both  Inclusive,  with  the  Figures  of  18S9  taken  as  a  Unit  Basis 


Product 

Coke  Con- 

Ore Cost, 

Limestone 

Coke  Cost, 

Labor  Cost, 

Cost  of 

Cost  of 

Total  Cost. 

Average 

Net 

Year 

per  Day, 

sumption 

Per  Cent 

Cost, 

Per  Cent 

Per  Cent 

Arbitraries, 

Sundries, 

Per  Cent 

Selling 

Average 

Tons, 

per  Ton  Iron 

Per  Cent 

Per  Cent 

Per  Cent 

Prices, 

Profit 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

1889 

100 

100 

100 

100 

100 

100 

100 

100 

100 

100 

100 

1890 

94    1 

99,4 

107.6 

87.6 

99  4 

112.8 

•    103.3 

105.8 

104.3 

103 

95   1 

1891 

101 

102.3 

98.2 

97  6 

102.8 

81.8 

103.3 

99.6 

97    1 

94  6 

79.7 

1892 

98    1 

100  6 

104.5 

53  7 

100.8 

70.2 

106  6 

112.2 

95    1 

87.1 

38.7 

1893 

120  6 

94.7 

105  8 

67.1 

94.6 

60.5 

100 

90.8 

89  6 

76  9 

00 

1894 

166.7 

91    2 

85  4 

54.7 

72  6 

44.6 

88.3 

70  1 

69.7 

65 

36  5 

1895 

155.7 

91    2 

76.6 

81    2 

74.5 

55.3 

95.6 

47.1 

69.8 

64  9 

35  7 

1896 

164.4 

101.2 

78 

41   6 

70.6 

50.9 

127 

42   1 

67 

64  6 

50  8 

1897 

184.3 

84.1 

78.4 

24.5 

64.8 

50.2 

116.6 

37.4 

63  2 

59  5 

37  5 

1898 

167.7 

91.2 

79 

40  3 

64   1 

519 

113  3 

33.4 

63.4 

61    2 

47  9 

Memoranda. — Arbitraries  cover  relining  charge,  general  office  expense,  taxes  and  insurance, 
and  engines  and  boilers  and  pumps,  and  small  tools  and  furnace  supplies. 


Sundries  cover  sand,  brass  and  iron  castings,  coal  to  locomotive 


1870      71        72        73       74        75        76       77        78        79        80       81       82       S3        84       * 

50 

18 
46 
11 
12 

40 

38 
36 
31 
32 

30 

2S 
26 
21 
82 

20 

18 
16 
11 
12 

10 

8 
6 
1 
2 
0 

X 

•>. 

R 

— c- 

D 

r  E 

1870     71       72       73       71       75       76       77       78       79       80       81       82       83       81       85 

Fig.  5. — Chakt  of  Labor  Costs. 

Fluctuations  in  Labor  Costs  on  six  commodities  during  6fteen  years 
under  a  contract  and  piece-work  system.  ( Henry  R.  Towne,  Trans. 
A.  S.  M.  E.,  1886.     From  Eng.  Mag.,  April,  1916.) 


CHAPTER  XII 
PROBLEMS  AND   DIFFICULTIES.     STANDARD  COST 


ESTIMATES  OF  COST  WHEN  THE  BY-PRODUCT  OR 
SCRAP  FROM  ONE  PRODUCT  IS  USED  IN  MAKING 
ANOTHER 

Problem.  A  boiler  and  tank  manufacturer  installs  a  costly 
punching  press  to  be  used  in  making  large  disks  for  boiler 
and  tank  heads.  The  material  used  is  steel  plate,  cut  into 
squares,  and  the  waste  or  scrap  is  25  per  cent  of  the  original 
material.  This  waste  may  be  sold  in  the  market  for  remelt- 
ing,  or  it  may  be  used  as  the  raw  material  for  small  disks  or 
washers  which  are  cut  in  a  small  press.  At  what  price  shall 
the  scrap  be  valued  in  estimating  the  cost  of  the  small  disks, 
and  what  is  the  factory  cost  or  inventory  value  of  the  small 
disks,  and  also  of  the  large  disks,  (a)  when  the  scrap  is  sold 
at  a  low  price,  (6)  when  the  scrap  is  utilized  in  making  small 
disks? 

Cost  Data,  before  Installing  the  Small  Press 

Operation.     Cutting  large  steel  disks. 

Machine.  Heavy  punching  press — cost,  with  attachments, 
$2000. 

Material.  Steel  plates  costing  2c.  per  pound  delivered 
at  the  machine. 

Scrap.  25  per  cent  of  the  raw  material,  sold  at  0.8  cents 
per  pound. 

Labor.  Pressman,  30  cents  per  hour.  Helper,  25  cents 
per  hour. 

Product.  20  disks  per  hour.  Average  weight  of  blanks, 
100  pounds. 

Running  Time.  600  hours  per  year,  the  market  for  large 
disks  being  limited. 

Yearly  cost  for  materials: 

600X20X100  =  1,200,000  lbs.  ©  2(i 
Yearly  cost  for  labor: 

600X0  30+600X0.25 
Estimated  burden: 

Interest,  Taxes,    Insurance,    Depreciation,    Repairs, 

Lubrication  of  machinery,  $2000  @  15%  300 

Rent  of  space  for  machinery  and  storage,  1000  sq.  ft. 

@  20^  per  year  200 

Interest  on  capital  invested  in  material  and  product 

(6  turnovers  a  year)  $4000  @  6%  240 

Power,  0.5  H.P.  @  4i  per  H.P.-houi,  600  hrs.  12 

Superintendence,  10%  of  labor  cost,  33  785 


$24,000 
330 


Credit  300,000  lbs.  scrap  @  0.8f!  per  lb. 


Total       25,115 
2,400 


Additional  Cost  after  Installing  the  Small  Press 

The  small  press  costs  $500.  Of  the  25  pounds  scrap  left 
after  making  each  large  disk,  60  per  cent,  or  15  pounds  is 
made  into  small  disks,  and  40  per  cent,  or  10  pounds  is  scrap 
sold  at  0.8  cents  per  lb.  The  machine  occupies  a  corner  of 
the  room  in  which  the  large  machine  is  located,  it  requires 
no  extra  superintendence,  and  no  extra  investment  of  capital. 
The  extra  costs  are : 


Labor,  one  man  1200  h,s.  per  year,  @  30p 
Burden:   Int.  Depn.  etc.,  on  machine  $500  @  I59< 
Power,  0.2  H.P.  @  4f!,  1200  hrs. 

75 
9 

00 
60 

360 

84 

444 

00 
60 

60 

If  we  charge  the  material  at  the  scrap  value 


300,000  lbs.  @  0.8 

Less  120,000  lbs.  sold  scrap  @  0  8 

Making  total  extra  cost  for  making  180.00C 
lbs.  small  disks 
or  1 .047  per  lb. 


2400 
960 

1440 

1884 

(10 


60 


Estimated  cost  of  small  disks  made  from  new  material: 


Material:    240,000  lbs.   @  2^ 

4800 

00 

Less  scrap  257c,  60,000  @  0.8(5 

480 

00 

4320 

00 

Labor,  1200  hrs.  @  30(i 

360 

00 

Burden:    Int.,  Depn.,  etc.,  on  machinery,  500  (ai 

4880 

60 

15% 

75 

00 

Power,  0.2  H.P.  @  *i  per  H.P.-hr.,  (1200  hrs.) 

9 

60 

Superintendence  (part  of  coat  charged  large  disks) 

18 

00 

Rent,  250  sq.  ft.  @  20j!  per  year. 

50 

00 

Interest  on  capital,  $4800  -=-6  =$800  @  6% 

48 

00 

200 

60 

Cost  of  180,000  lbs.  disks  ©2.711  per  lb.,  total 

4880 

to 

Cost  of  900,000  lbs.  of  disks,  average  2.524^  per  lb.      $22,715 


Revised  Estimate  of  Cost  of  Large  Disks 

Charging  the  small  disks  with  part  of  the  burden  of  the 
large  disks  as  in  the  above  table  involves  a  modification  of  the 
cost  estimate  of  the  large  disks  as  below.  If  we  charge  the 
small  disks  and  credit  the  large  disks  with  the  scrap  at  a 
price  which  will  make  it  equivalent  to  that  of  raw  material, 
making  the  net  cost  of  material  for  the  small  disks  $4320 
after  deducting  $960  for  120,000  pounds  scrap  sold  at  0.8  cent, 
this  charge  and  credit  will  be  4320+960  =  5280,  or  1.76  per 
pound.    The  revised  estimate  for  the  large  disks  then  becomes 


108 


PROBLEMS  AND   DIFFICULTIES.     STANDARD  COST 


100 


Material,  1.200,000  lbs    @  2(i 

240,000 

Less  300,000  lbs.  scrap  @  1    76 

5,280 

18,720 

Labor  as  before 

330 

Burden,  Interest,  Depreciation,  etc. 

aa  before 

300 

Rent,  750  sq.  ft.  @  20ji 

150 

Interest  on  capital  240 — 48 

192 

Power 

12 

Superintendence  33 — 18 

15 

669 

19,719 

Total  900.000  lbs.  @  2  I9lf?  per  lb. 

Summary 

(1)  Cost  of  000,000  pounds  large  disks,  material  cost 
2  cents  per  pound,  and  300,000  pounds  scrap  sold  at  0.8  per 
pound,  total  cost  $22,715  =  2.524  per  pound. 

(2)  If  the  scrap  is  credited  at  1.76  cents  per  pound,  the 
price  charged  to  the  small  disks,  and  a  portion  of  the  burden 
is  also  charged  to  the  small  disks,  total  cost  $19,710  =  2.191 
cents  per  pound. 

(3)  Cost  of  180,000  pounds  small  disks  made  from  240,000 
pounds  new  material  at  2  cents  per  pound,  60,000  pounds 
scrap  sold  at  0.8  cents;  or  from  the  300,000  pounds  scrap 
from  the  large  disks,  charged  at  1.76  per  pound,  and  crediting 
120,000  pounds  scrap  sold  at  0.8  cents,  the  small  disks  being 
charged  with  their  share  of  the  burden  of  the  department, 
$4880.60  =  2.711  cents  per  pound. 

(4)  Cost  of  the  small  disks  if  made  of  scrap  charged  at 
0.8  cents  per  pound  and  with  only  the  extra  burden  caused 
by  making  the  small  disks,  leaving  the  large  disks  to  assume 
all  the  regular  burden  of  the  department  as  in  (1),  $1884.60  = 
1.047  cents  per  pound. 


(5)  Total  cost  of  900,000  lbs.  large  disks 
and  1 80,000  lbs.  small  disks 

1.080.000  lbs.  average  cost  2.278f!  per  lb. 


22.715 
1,884 

00 
60 

19,719 

4,880 

24,599 

60 

24,599 

60 


Analysis  of  Costs 

Material 

Burden 

Labor 

Large  disks 
Small  disks 

21,600  or  18,720 
1,440  or    4.320 

785        or  669 
84  60  or  200.60 

$330 
360 

Total 

23,040       23,040 

869.60       869.60 

690 

Now,  which  of  these  figures  is  the  "  true  "  factory  cost  and 
which  should  be  entered  as  the  inventory  value  or  used  as  a 
basis  for  quoting  prices? 

The  net  cost  of  material,  $23,040,  is  based  on  the  most 
favorable  condition  of  the  utilization  of  scrap,  viz.:  that  all 
the  scrap  from  the  large  disks  was  taken  for  the  manufacture 
of  the  small  disks  and  that  none  of  it  had  to  be  sold  outside  on 
account  of  deficient  demand  for  the  small  disks,  and  that  no 
new  material  needed  to  be  bought  for  the  small  disks  at 
2  cents  per  pound  on  account  of  the  demand  for  small  disks 
being  greater.  Such  a  balance  between  demand  and  supply 
of  scrap  of  a  given  quality  and  shape  is  exceedingly  rare,  and 
would  not  be  likely  to  repeat  itself  the  next  year.  If  all  the 
disks  were  unsold  at  the  time  of  taking  the  inventory  for  the 
purpose  of  figuring  profits  and  losses,  it  would  be  proper  to 
value  them  at  the  recorded  cost,  $24,599.60,  or  2.278  per 
pound,  although  it  would  probably  cost  more  to  replace  them 


when  they  were  sold;  but  it  would  not  be  safe  to  use  this 
figure  as  the  basis  upon  which  the  lowest  selling  price  for 
future  contracts  should  be  fixed,  for  that  should  take  into 
consideration  the  fact  that  the  recorded  cost  was  probably 
abnormally  low  on  account  of  the  unusually  favorable  con- 
dition of  the  balance  of  supply  and  demand  for  scrap. 

Factory  costs  are  needed  in  order  to  get  approximately 
correct  inventory  values,  from  which  to  calculate  profits 
and  losses;  also  in  order  to  have  a  basis  for  minimum 
selling  prices;  the  recorded  costs  are  past  history,  useful 
to  the  bookkeeper,  to  balance  his  books,  but  the  costs 
that  are  to  be  used  as  a  basis  for  future  prices  should  be 
"  normal  costs  "  or  probable  future  costs,  and  these  may 
differ  considerably  from  the  recorded  costs. 

The  case  becomes  much  more  complicated  when  the  product 
is  of  two  or  more  classes,  as  in  the  case  of  the  disks,  and  when, 
in  taking  the  inventory  there  is  found  on  hand  a  much 
larger  fraction  of  the  total  annual  product  of  one  class  than 
of  another.  Suppose  that  before  taking  the  inventory  two- 
thirds  or  600,000  pounds  of  the  large  disks  were  sold  at  3  cents 
per  pound,  the  selling  expense  being  0.3  cents  per  pound, 
and  one-third  or  60,000  pounds  of  the  small  disks  at  2.5 
cents  per  pound  with  a  selling  expense  of  0.5  cents  per  pound, 
what  is  the  profit  on  each  size,  and  what  is  the  inventory 
value  of  the  remainder? 


Large  Disks 

Sold  600,000  lbs.  ©  (3-0  3)  f 
Coat  ©  2.524f! 

$16,200 
15,143 

00 

33 

or  @  2    191 

or 

$16,200 
13,146 

00 
00 

Profit 

1.056 

67 

3,054 

00 

Small  Disks 


Sold  60,000  lbs.  ©(2.5-0.5)? 
Cost  ©  1   047ff 

Profit 

Sum  of  profits 


1,200 

00 

628 

20 

571 

80 

1,628 

47 

or  @  2.711 
or  Loss 


1,200 
1.626 


426 

2,626 


00 
87 


87 
13 


Putting  the  transactions  in  ledger  form  we  have: 

Dr.  Large  Disks  Cr. 


900.000  ©2.524 
Profit 

22,715 
1,056 

00 
67 

600,000  ©27 
Bal.  300,000  ©  2 .524 

600,000  ©27 
Bal.  300,000  ©  2    191 

16.200 
7.571 

00 
67 

or 

900,000  ©  2   191 

Profit 

23,771 

19,719 
3,054 

67 

00 
00 

23,771 

16.200 
6,573 

67 

00 
00 

22.773 

00 

22,773 

00 

Small  Disks 


180,000  ©  1 

047 

1.884 

60 

60,000  ©  2 

1,200 

00 

Profit 

571 

80 

Bal. 

120,000  ©  1 

047 

1,256 

40 

2,456 

40 

2,456 

40 

or 

180,000  ©  2 

711 

4,880 

60 

60.000  ©  2 

1,200 

00 

Bal. 

1  20.000  ©  2 

711 

3,253 

13 

Loss 

426 

87 

4,880 

60 

4,880 

60 

110 


BOOKKEEPING  AND  COST  ACCOUNTING 


Suppose  that  all  the  disks  are  sold,  leaving  no  inventory, 
then,  for  the  two  assumed  values  of  scraps,  we  have: 


Profit  on  investment  of  capital: 


Scrap  at  0. 8 j!  total 
Per  lb. 

Scrap  @  1.76^  total 
Per  ib. 


Large   Disks 


Cost 


22.715 
2.524? 

19,719 
2.181 


Profit 


1585 
0.I76C 


4581 
0.519 


Small   Disks 


Cost 


1 884  60 

1  047C 

1880   6C 

2  711 


Profit 

1715.40 

0.953C 

Loss 

1280.60 
0.711 


All   Disks 


Cost 


24.599.60 
2.278 

24,599.  6C 
2  278 


Profit 


3300.40 
0.356(* 

3300.40 
0  356 


If  the  scrap  is  charged  at  the  market  value,  the  apparent 
cost  of  the  small  disks  is  much  too  low,  and  the  apparent 
profit  much  too  great. 

If  the  scrap  is  charged  at  a  price  equivalent  to  that  of  new 
material,  the  cost  of  small  disks  is  too  great,  leading  to  an 
exaggerated  inventory  value  and  to  a  large  apparent  loss 
when  the  disks  are  sold.  Both  methods  of  computing  costs 
and  corresponding  inventory  values  and  profits  are  wrong. 
Some  compromise  value  of  the  scrap  used  for  the  small  disks 
must  be  found. 

It  will  not  be  correct  to  lump  the  two  sizes  of  disks  together, 
using  the  average  cost  2.278  cents  per  pound,  thus  eliminating 
the  question  of  the  value  of  the  scrap,  for  that  would  make 
the  small  disks  cost  more  than  their  selling  price  less  selling 
expense. 

It  would  appear  to  be  fair  to  fix  the  price  of  scrap  to  be 
credited  to  the  large  disks  and  charged  to  the  small  disks  at 
such  a  figure  as  would  split  the  difference  between  0.8  and 
1.76  cents,  making  it  1.28  cents,  thus  allowing  the  large  disks 
to  gain  0.4S  over  the  market  value  of  the  scrap  and  the  small 
disks  to  gain  an  equal  amount  over  what  they  would  have  to 
pay  if  they  were  made  from  new  material  at  2  cents  per  pound 
or  from  scrap  at  the  equivalent  value  of  1.76  cents.  Figur- 
ing in  this  way  we  obtain  revised  cost  and  profit  estimates  as 
follows: 


Large  Disks: 

Material,  1,200,000  @  2(! 
Less  300,000  @  1 .  28 


Labor 
Burden 


Selling  price,  net  @  2.7 
Profit,  0.349(«  per  lb. 

Small  Disks: 

Material  3000,000  @  1.28^ 
Less  120,000  @  0.8 


Labor 
Burden 

180.000  @  1.91  If! 
Selling  price,  net  ®  2p 

Profit,  0.089)!  per  lb. 


24,000 
3.840 

20,160 
330 
669 

21,159 
24,300 

3,141 


3,840 
960 

2.880 
360 
200.60 

3,440.60 
3,600 

159.40 


Capital  in  machinery 
Capital  in  stock 


$3141  +  6000=52.35% 


Large  Disks 
2000 
4000 


Small  Disks 
500 
0 


6000  500 

159.40+500=31   88Tt, 


This  is  probably  a  close  enough  approximation  to  true 
costs,  considering  that  in  actual  business  there  would  rarely, 
if  ever,  be  such  a  balance  between  supply  and  demand  for 
scrap  that  none  of  the  large  scrap  would  have  to  be  sold  at 
the  market  price  for  scrap  used  for  remelting,  or  that  there 
would  be  no  need  of  purchasing  new  material  for  the  small 
disks  on  account  of  the  deficiency  of  scrap — also  that  so 
much  of  the  burden  charged  is  based  not  on  actual  expendi- 
tures but  on  estimates,  which  themselves  are  based  on 
hypotheses  or  guesses. 

Moral:  There  is  no  such  thing  as  "  true  cost  "  when  the 
product  is  varied  in  kind  and  when  one  product  gives  by- 
products to  be  utilized  in  another  product,  but  the  account- 
ants and  the  management  should  make  every  effort  to  obtain 
as  close  an  approximation  to  true  costs  as  possible. 

Elbourne  (Factory  Administration  and  Accounts)  says: 

"The  art  of  costing  is  essentially  one  of  close  approximations 
rather  than  the  collection  of  absolute  facts.  However  precisely 
the  ne*,  quantities  of  materials  are  obtained  there  will  be  a  call 
for  judgment  in  the  prices  to  be  charged  in  the  costs. 

"Until  men  become  absolutely  automatic  machines  and  the 
administration  is  perfected  in  the  last  degree  there  can  be  no 
guarantee  of  the  absolute  accuracy  of  the  time  charged  to  a  given 
job.  Those  systems  that  provide  for  the  time  lost  between  jobs 
being  charged  up  to  a  special  account  neglect  the  human  nature  of 
most  foremen. 

"As  to  strict  accuracy  in  the  allocation  of  works  expenses,  this 
is  obviously  impossible,  but  it  is  in  this  field  that  so  much  return 
is  yielded  by  a  scientific  investigation  of  the  approximately  true 
incidence  of  expense." 

The  Cost  of  Silver  (from  an  article  by  James  H.  Collins 
in  the  Saturday  Evening  Post,  October  14,  1916). 

"Silver  has  been  so  thoroughly  a  by-product  during  the  past 
generation  that  the  West  has  almost  forgotten  how'to  figure  costs 
upon  it. 

"Some  estimates  of  cost  can  be  made  from  the  reports  of  rep- 
resentative mining  companies.  The  mountain  at  Bingham,  Utah, 
worked  by  steam  shovels,  last  year  yielded  150,000,000  pounds 
of  copper,  370,000  ounces  of  silver  and  35,000  ounces  of  gold.  The 
cost  of  operating  was  812,000,000  and  the  metals  sold  for  $27,000,- 
000.  This  gave  an  all-round  cost  of  less  than  50  per  cent; 
and  as  the  silver  sold  for  50  cents  an  ounce  its  cost  might  be  set 
at  about  23  cents.  The  Bunker  Hill  and  Sullivan  mine,  in 
Idaho,  yielded  75,000,000  pounds  of  lead  and  1,300,000  ounces  of 
silver.  Operating  costs  were  about  $3,000,000  and  the  metals 
sold  for  about  $4,000,000.  With  silver  at  50  cents  an  ounce 
the  cost  was  37  cents." 

When  silver  is  produced  as  a  by-product  of  gold  and 
copper  or  of  lead,  it  is  absurd  to  say  that  its  cost  is  23 
cents  or  37  cents  per  ounce,  or  any  other  figure.  A  farmer 
might  figure  the  cost  of  raising  sheep,  but  he  could  not 
figure  separately  the  cost  per  pound  of  producing  wool, 
hides  and  mutton. 


PROBLEMS  AND   DIFFICULTIES.     STANDARD  COST 


111 


HOW   TO   REDUCE   COSTS.     STANDARD    COST 

The  cost  accountant  may  consider  that  his  work  is  finished 
up  to  any  given  date  when  he  is  able  to  show  figures  for  the 
cost  of  each  article  in  the  warehouse,  the  cost  of  assembling 
it  from  the  finished  parts,  the  cost  of  each  part,  and  the  cost 
of  each  operation  on  each  part,  but  when  all  of  these  figures 
are  available  the  work  of  the  cost  analyzer  (or  ot  the  Factory 
Cost  Committee)  has  only  just  begun.  His  problem  is  to 
answer  the  questions.  Why  did  this  operation  cost  so  much? 
What  are  the  elements  into  which  this  operation  may  be 
divided?  What  is  a  reasonable  standard  time  for  each 
element?  What  must  we  do  to  bring  down  our  actual 
operating  times  to  or  near  the  standard  time? 

Assuming  that  the  operation  in  question  is  one  done  on  a 
machine  tool,  in  order  to  reach  minimum  costs  the  following 
requirements  must  be  met  before  the  machinery  operation  is 
started.  (C.  U.  Carpenter  on  "  Profit-making  Manage- 
ment.-') 

1.  There  must  be  ample  stock  delivered  to  the  workman  before 
he  stops  work  upon  his  preceding  job. 

2.  The  stock  must  be  so  placed  as  to  be  most  easily  reached  or 
handled  by  the  workman.  This  presupposes  a  standard  place 
for  the  stock. 

3.  The  clamping  devices  must  be  simple,  effective  and  standard, 
and  must  be  supplied  to  the  workman  before  he  is  ready  to 
start. 

4.  The  tools  must  be  standard  in  every  respect,  ground  to 
proper  shapes  and  supplied  to  the  workman  before  he  is  ready 
to  start. 

5.  The  jigs,  fixtures,  punches,  dies,  gages,  etc.,  must  be  so 
designed  as  to  be  handled  easily,  quickly  and  accurately,  and 
must  be  at  the  workman's  side  before  he  is  ready  to  begin  work 
upon  his  new  job.  These  tools  and  gages  must  be  inspected  for 
accuracy  regularly  so  that  the  foreman  and  workmen  may  have 
full  confidence  in  them. 

6.  All  stock  coming  into  a  department  ?nust  be  inspected  before 
it  is  placed  upon  the  department  platform. 

To  the  above-named  requirements  several  more  may  be 
added,  which  relate  to  the  machine  itself,  such  as:  The 
machine  must  be  of  the  kind  and  size  best  suited  for  the 
work;  it  must  be  rigidly  supported,  in  good  repair;  properly 
belted  and  geared;  lubricated  with  the  right  kind  of  oil; 
its  working  table  at  the  proper  height  and  its  operating  levers, 
handles  or  wheels  so  arranged  as  to  involve  the  least  possible 
fatigue  to  the  workman;  it  should  be  in  a  sanitary  location 
and  well  lighted. 

When  all  of  these  requirements  are  fulfilled,  and  not  before, 
time  studies  should  be  made,  by  means  of  a  stop  watch  or 
other  timing  device,  such  as  Gilbreth's  chronocyclegraph,  of 
the  following:  1,  The  time  required  to  handle  the  part  or 
parts;  2,  The  time  required  to  "  set  up  "  the  job;  3,  The 
time  required  for  the  machinery  operation;  4,  The  time 
required  to  remove  the  work. 

The  next  consideration  in  the  matter  of  reduction  of  costs, 
and  obtaining  standard  costs,  is  the  selection  of  the  kind  of 
man  best  suited  for  the  work.  It  is  evident  that  if  the  work 
is  of  a  simple  and  repetitive  character,  such  that  an  ordinarily 
intelligent  and  willing  day-laborer  can  do  it  easily  after  a 
few  weeks'  practice  under  instruction,  it  is  not  good  economy 
to  have  it  done  by  an  all-round  expert  machinist,  a  4-dollar-a- 


day  man.  A  $2  man,  encouraged  by  a  bonus  which  will 
enable  him  to  earn  S3  a  day  without  undue  fatigue,  when  he 
becomes  skillful,  will  do  more  work  than  the  .?•!  man,  whose 
rightful  place  is  in  the  tool  room  or  in  charge  of  a  machine 
operating  on  a  variety  of  work  requiring  a  wide  range  of 
knowledge  and  experience. 

Standard  conditions,  standard  times  and  standard  task 
and  bonus  rates  having  been  thus  determined  by  the  cost 
analyzer  or  the  cost  committee  for  different  operations,  the 
figures  are  handed  to  the  cost  accountant,  who  now  has  a 
new  and  most  important  job,  the  preparation  of  Standard 
Prime  Cost  cards  for  different  operations,  and  the  charting 
of  costs  of  operations  on  all  the  machines  of  the  shop,  so  that 
a  basis  may  be  had  for  the  Predetermination  of  costs  of 
future  work. 

When  job  tickets  and  instruction  cards  are  given  out  for 
new  work,  the  standard  times  may  be  entered  on  them,  and 
if  in  actual  operation  the  standard  times  are  not  reached  the 
foreman  may  be  called  on  for  an  explanation  and  the  proper 
remedy  applied. 

Some  of  the  things  to  be  considered  when  costs  appear  to 
be  too  high  are  listed  below: 

Idle  time. 

Load  factor  of  machines. 

Revision  of  burden  charges. 

Can  total  burden  be  reduced? 

Is  it  properly  apportioned  to  departments  and  machines? 

Cost  of  the  cost  accounting  system. 

Re-design  of  patterns. 

Change  in  system  of  manufacture. 

Change  in  material. 

Standard  Costs.  Manufacturing  plant  has  the  capacity  for  a 
certain  production,  and  incurs  burden  charges  in  maintaining 
that  capacity.  These  charges  must  be  distributed  over  the 
standard  production.  This  means  the  determination  of  standard 
costs  for  burden,  as  well  as  for  labor  and  material,  and  enables 
a  standard  of  cost  to  be  established  for  all  products.  If  the  cost 
accounting  is  to  be  of  maximum  value,  much  emphasis  must  be 
laid  on  the  importance  of  knowing  more  than  present  cost  alone. 
Costs  should  be  established  which  represent  standards  by  which 
to  gain  a  true  conception  of  the  value  of  results. — Clinton  H. 
Scovell. 

Universal  Cost  Formula  (Harrington  Emerson). 

Material  cost + Man  cost -[-Machine  cost  =  Value 

Q,  T,  and  t,  are  the  Quantity  Factors 
P,  W,  and  R  are  the  Quality  Factors 
QP+TW+tR  =  Value. 

Cost  Formula  separating  Burden  from  Direct  Costs: 

(1)  QP+TW+tR+P+M+S+R  =  Cost 

QP  =  Value  of  Direct  Material, 
TW = Value  of  Direct  Labor, 
tR    =Cost  of  Machne  Hour, 
P     =Cost  of  Power, 
M    =Cost  of  Maintenance, 
S     =Cost  of  Supervision, 
R     =Cost  of  Rent, 


112 


BOOKKEEPING  AND   COST  ACCOUNTING 


(2)  Q(P+Bp)  +  T(W+Bw)+t(R+Br)  =  Cost. 

Q     =  Quantity  of  Direct  Material. 

P     =  Price  per  unit  of  material. 

Bp  =  Burden  on  Price. 

T     =  Quantity  of  Direct  man-hours. 

W    =  Hourly  Wage. 

Biv  =  Burden  on  Hourly  Wage. 

t       =  Quantity  of  direct  machine-hours. 

R     =  Rate  per  machine-hours. 

Br   =  Burden  on  rate. 

Causes  of  High  Cost  of  Work  in  Government  Arsenals 
(Extract  from  a  statement  by  Col.  C.  B.  Wheeler,  Ordnance 
Dept.,  U.  S.  A.,  in  the  hearing  before  the  House  of  Repre- 
sentatives Committee  to  investigate  scientific  management, 
Vol.  l,p.  HO). 

After  considerable  thought  on  the  subject  I  am  led  to  believe 
that  the  present  unsatisfactory  condition  as  to  relative  cost  of 
manufacture  to  which  attention  has  been  invited,  results  from  a 
series  of  conditions  most,  if  not  all,  of  which  are  correctable  by 
proper  management  and  which,  of  course,  can  be  materially 
assisted  by  hearty  cooperation. 

The  following  appear  to  be  the  principal  causes  which  increase 
cost  of  production,  or  have  a  tendency  to,  and  to  which  especial 
attention  must  be  constantly  given  to  insure  results  tending 
toward  economy,  viz.: 

1.  Frequent  changes  in  management. 

2.  Absence  of  system  and  shop  management. 

3.  The  number  of  working  days  each  year  allowed  for  holidays 
and  vacations,  amounting  each  year  at  Watertown  Arsenal  to  an 
expenditure  of  approximately  $30,000. 

4.  Lack  of  a  proper  stock  of  supplies. 

5.  The  conduct  of  all  work  on  the  day's  pay  system. 

6.  The  restrictions  imposed  by  laws  and  regulations  especially 
as  to  the  procurement  of  material. 

7.  Lack  of  coordination  of  the  work  being  carried  on  in  the 
different  shops. 

S.  Multitudinous  duties  of  foremen. 

9.  Lack  of  sufficient  tools  of  proper  power. 

10.  Loss  of  time  in  looking  for  proper  and  necessary  tools  and 
fixtures. 

11.  Loss  of  time  due  to  employees  waiting  at  grinders  and  at 
the  tool  room. 

12.  Loss  of  time  due  to  breakages  or  repairs  of  machines  and 
belts. 

13.  Loss  of  time  waiting  for  the  next  job. 

14.  Losses  due  to  lack  of  proper  instructions  or  to  spoiled  work. 

15.  Lack  of  a  proper  tool-room  equipment. 

16.  Lack  of  proper  transportation  facilities  in  the  shops,  such 
as  cranes,  hoists,  and  runways. 

17.  Wastage  and  lack  of  economy  in  the  operation  of  the  power 
plant. 

18.  Lack  of  proper  attention  to  costs  of  detailed  operations. 

19.  Endeavor  to  make  parts  with  poor  facilities  and  at  great 
expense  which  can  be  procured  very  much  cheaper. 

20.  Delays  in  getting  material  when  needed,  causing  changes  in 
plans. 

21.  Additional  cost  of  transportation  service  between  shops 
under  a  system  that  permits  a  helper  for  each  teamster. 

22.  The  large  amount  of  metal  that  is  frequently  left  on  cast- 
ings and  which  has  to  be  removed. 

23.  The  commencement  of  work  before  a  sufficient  supply 
of  material  is  on  hand  to  finish  the  job. 

24.  Failure  to  take  full  advantage  of  the  machines  or  tools 
provided;  and,  finally,  a  lack  of  information  as  to  the  best 
practice. 

Perhaps  the  most  important  of  all  these  items  is  lack  of  system 


and  shop  management,  since  once  established  many  of  the  other 
items  would  naturally  be  drawn  into  line  for  elimination.  A 
system  that  would  most  economically  produce  the  results  desired 
is  under  consideration  and  already  some  progress  has  been  made 
toward  its  adoption.  It  is  expected  when  in  running  order  to 
relieve  the  management,  including  the  foremen,  from  numerous 
exhausting  details,  the  time  consumed  on  account  of  them  bein- 
more  profitably  employed  in  other  directions. 

Concerning  methods  of  distributing  expense  burden,  Col. 
Wheeler  said  (page  791): 

Prior  to  1906  shop  expenses  were  unknown  to  the  Ordnance 
Department,  and  all  labor,  no  matter  how  promiscuous  or  diffi- 
cult of  apportionment,  was  charged  directly  to  order.  This 
involved  an  immense  amount  of  unprofitable  clerical  labor. 
The  department  was,  however,  so  wedded  to  this  old  system  of 
charging  everything  directly  to  orders,  and  was  otherwise  so 
conservative,  that  for  a  long  period  after  Congress  authorized 
the  taking  of  a  valuable  share  of  productive  labor  costs  to  pay 
shop  expenses,  there  was  a  feeling  that  the  efficiency  of  an  estab- 
lishment was  measured  by  the  smallness  of  the  shop  expense 
percentage,  and  great  stress  was  laid  upon  the  ratio  of  the  non- 
productive to  the  productive  labor  at  the  various  arsenals. 
This  standard  for  the  measurement  of  efficiency  is  entirely  wrong. 
The  only  proper  way  of  considering  this  matter  is  to  determine 
whether  or  not  the  non-producer  is  profitable — that  is  to  say, 
fully  occupied  in  keeping  the  skilled  producer  at  the  kind  of 
work  for  which  he  was  employed  and  for  which  he  is  best  fitted. 
A  comparison  of  shop-expense  percentages  is  generally  mislead- 
ing and  can  not  measure  efficiency  of  production. 

The  method  now  in  force  is  one  which  causes  orders  passing 
through  the  manufacturing  departments  to  contribute  mote 
equitably  their  proper  share  to  the  shop  expense  fund  by  appor- 
tioning the  shop  expenses  to  them  in  accordance  with  the  man- 
hour  or  machine-hour  costs  involved  in  their  execution.  The 
result  of  such  apportionment  is  that  the  larger  pieces  requiring 
the  larger  and  more  expensive  machines  contribute  more  per 
hour  to  the  shop  expense  fund  than  do  the  smaller  pieces  requir- 
ing smaller  machines  or  perhaps  only  bench  work.  Any  system 
of  shop  expense  recruitment  based  upon  a  percentage  of  direct 
labor  charges  means  that  smaller  work  carries  the  larger. 

REDUCING  THE  COST  OF  THE  COST  SYSTEM 
The  chief  objection  to  all  elaborate  cost-finding  systems  is 
that  they  cost  too  much;  that  their  operation  involves  the 
employment  of  a  small  army  of  clerks,  and  that  the  informa- 
tion obtained  is  not  worth  what  it  costs.  A  good  cost  system 
is  a  necessary  element  in  scientific  management,  the  aim  of 
which  is  the  elimination  of  useless  work  and  of  waste  motions, 
and  the  consequent  reduction  of  costs.  The  principles  of 
scientific  management  should  be  applied  to  cost  systems 
themselves  as  well  as  to  manufacturing  operations. 

In  order  to  illustrate  what  may  be  done  in  the  direction  of 
reducing  the  cost  of  a  cost  system  we  may  take  an  imaginary 
case  of  the  costing  of  an  order  for  10,000  locks  in  a  large  hard- 
ware factory  in  which  all  the  paraphernalia  of  a  cost  system 
based  on  the  normal  machine-hour  rate  have  been  installed. 
Every  machine,  work-bench  or  other  center  of  production  has 
its  hourly  burden  rate  fixed,  all  work  is  done  and  all  stores  are 
issued  on  written  orders.  Job  tickets  are  used  for  each 
operation  on  each  piece  that  enters  into  the  finished  product, 
and  from  the  data  obtained  from  these  tickets  is  found  the 
cost  of  each  product  delivered  into  the  warehouse. 

The  raw  materials,  which  are  in  the  store  ready  for  the 
manufacturing  operations,  consist  of  iron  and  brass  castings, 


PROBLEMS  AND   DIFFICULTIES.     STANDARD  COST 


113 


steel  drop  forgings,  sheet,  band,  wire,  rivets  and  screws. 
The  clerical  work  done  in  connection  with  the  progress  of  the 
order  through  the  shop  involves  the  following: 

Permanent  blue  print  or  carbon:  1  stores  issue  for  all  the 
material;  1  schedule  of  parts;  1  route  sheet;  1  set  of  instruc- 
tion cards. 

Production  order,  reading  as  follows: 

Production  Order  No.  1117.  Date  2/20/17. 

Make  10,000  locks,  style  X  -45. 

The  part  and  routing  schedules  show  that  there  are  10 
parts  to  each  lock  (not  counting  duplicates  of  any  part) 
and  that  there  are  on  an  average  five  operations  on  each  part, 
besides  the  operations  of  inspection  of  parts,  assembling, 
testing,  japanning,  final  inspection  and  packing. 

The  work  is  done  by  ten  different  men,  using  ten  machines 
or  work  benches. 

The  time  of  each  man  averages  forty  days  of  nine  hours 
each,  making  a  total  of  3600  man-hours. 

All  the  work  is  on  piece  work  or  task  and  bonus,  and  the 
average  earnings  are  thirty  cents  per  hour. 

The  total  direct  labor  cost  is  $1080  or  10.8  cents  per  lock. 
The  total  material  cost  is  500  or    5.0  cents  per  lock. 

The  total  burden  cost  is  920  or    9.2  cents  per  lock. 

2500       25.0  cents 

In  order  to  obtain  the  labor  and  burden  costs  we  start 
with  the  time-keeping.  Here  we  meet  the  first  application 
of  scientific  management  to  the  cost  system,  the  finding  out, 
by  careful  investigation  and  accurate  recording,  which  is  the 
best  and  at  the  same  time  the  cheapest  way  of  keeping  time. 
There  are  many  different  ways,  starting  with  the  old-fashioned 
foreman's  or  time-keeper's  time  book.  Those  in  common 
use  may  be  compared  as  below: 

Time-keeping  Systems 


Daily  Time  Tickets 


10  men,  40  days,  400 
tickets. 

(1)  As  there  are  60  jobs 
on  each  lock  there 
may  be  two  or  three 
jobs  entered  on  some 
of  the  daily  tickets. 

(2)  Or  else  a  separate 
ticket  may  be  issued 
when  a  man  works  on 
more  than  one  job  in 
a  day,  making  say  800 
tickets. 


Weekly  Time  Tickets 


The  40days  mayinclude 
6  whole  weeks  and 
parts  of  two  others, 
making   8    weeks. 

(3)  10  men,  80  tickets, 
each  ticket  having  a 
record  on  it  of  the  dif- 
ferent jobs  done  by  a 
man  in  each  day. 

(4)  or  a  new  ticket  may 
be  issued  when  a  man 
changes  his  job  during 
the  week.  This  may 
double  the  number  of 
tickets,  making  1 60 
tickets. 


Job  Tickets 


As  there  are  60  opera- 
tions on  each  lock  one 
ticket  may  be  used  for 
each,  on  which  an 
entry  is  made  of  the 
man's  No.,  Name,  Ma- 
chine No.,  Production 
No.,  Job  No.,  Part 
and  operation  symbol, 
Hours,  Pieces  made. 
Piece  Hate,  Bonus  and 
Burden.  All  of  these 
data  are  transcribed 
from  the  time  tickets. 

(5)  60  tickets,  160  or 
800  entries,  according 
to  whether  daily  or 
weekly  time  tickets  are 
used. 

(6)  Combined  Time  and 
Job  tickets.  No.  4 
tickets  may  have  en- 
tered on  them  all  the 
data  of  the  jobs,  thus 
saving  the  transcrib- 
ing of  160  tickets. 


Production  Order,   1,117 

Job  No.,  19,172 

Week  ending  3    10/17 

Workman's  No.  126 

Workman's  name,     J.  Jones 

Machine  No.  L  13 

Piece  symbol,   AEF 

Operation  symbol,   Dg 

Hours,   54 

Pieces  made,    1520 

Piece  rate,  0.9 

Bonus,  30% 

Wages 

Burden,  54  hr.  X30 

Labor  and  Burden  cost 

Mateiial  (on  store  card) 

Defective  pieces,  12 

The  back  of  this  card  has  the  "in"  and  "out"  times 
stamped  on  it  by  the  clock,  from  which  the  hours  for  the 
week  are  figured.  The  burden  rate  is  taken  from  a  table 
of  the  normal  rates  of  the  several  machines.  The  card  may 
also  have  a  memorandum  of  the  number  of  spoiled  or  defec- 
tive pieces,  stating  whether  they  were  due  to  flaws  in  the 
material  or  to  bad  workmanship. 

The  cards  are  sorted  by  workmen's  numbers  and  posted  on 
the  pay  roll.  They  are  then  sorted  by  machine  numbers, 
and  the  total  hours  for  each  machine  for  the  week  entered 
on  the  machine-hour  record  sheet.  -  They  are  finally  sorted 
by  piece  symbols,  and  the  figures  are  entered  on  the  piece 
cost  cards.  They  are  then  filed  in  envelopes  or  folders  bear- 
ing the  piece  symbols  for  future  reference. 

The  Piece  Cost  Cards  may  contain  the  following  informa- 
tion: 

Piece  Symbol  AEF 
Prod,  order  1,117, 
No.  of  pieces  Finished 

Material  lbs.    © 

Total  direct  labor  Total  cost 

Total  burden  Cost  per  100  pes. 


Job  No. 

Operation 

Pieces 

Labor 

Burden 

Total 

19171 

Fg. 

2000 

4.00 

3.00 

7  00 

2 

dg. 

1520 

17.78 

16.20 

33  98 

3 

mg. 

1400 

9.30 

10  00 

19  30 

1 

fg. 

2200 

4.40 

3.30 

7.70 

2 

dg. 

And  30  on 

until  all  the 

operations 

on  AEF  for 

3 

mg. 

10.000  lo 

eka  are  finis 

hed: 

Labor  and  Burden  on  42  pes.  spoiled 
Cr.  for  value  of  scrap 

The  totals  on  the  Piece  Cost  Cards  are  transferred  to  a 
Finished  Product  Cost  Summary. 

Finished  product  X  — 45 

Prod,  order  1117  Finished  4  21    17 

No.  made  10.000  Cost  each  $0  25 


The  combined  time  and  job  ticket  No.  6  has  the  follow- 
ing information: 


Piece 

Material 

Labor 

Burden 

Total 

Cost  per 
100 

AEF 
G 

H  (etc.) 

Inspection 

Assembling 

Japanning 

Testing 

Packing 

Total 

500 

1080 

920 

2500 

$25  00 

114 


BOOKKEEPING  AND   COST  ACCOUNTING 


The  final  result,  $25  per  100,  is  entered  on  the  Stores  Inven- 
tory Card  for  X-45  and  is  used  as  a  basis  for  the  annual 
inventory  value,  for  fixing  selling  prices,  and  for  various 
statistical  purposes. 

Let  us  suppose  that  the  cost  system  above  described  has 
been  installed  by  a  "  systematizer,"  and  is  in  operation  in  one 
department  only  of  the  hardware  factory,  the  lock  depart- 
ment, and  that  the  first  production  order  has  been  completed 
under  it,  the  daily  time  ticket,  No.  2,  having  been  used.  The 
manager  investigates  the  results,  and  he  is  satisfied  that  the 
reported  cost,  25  cents  per  lock,  is  as  near  to  the  true  cost  as 
can  be  ascertained  by  any  system.  It  is  accurate  as  far  as 
the  cost  of  material  and  direct  labor  is  concerned,  but  the 
burden  is  based  on  two  assumptions  which  may  be  far  from 
'  accurate;  one  is  the  estimated  life  of  the  machinery,  from 
which  the  charge  for  depreciation  reserve  is  based,  and  the 
other  is  the  estimated  number  of  hours  that  the  machines 
will  run  during  a  normal  year,  from  which  the  normal  hourly 
burden  of  the  several  machines  is  calculated.  The  calculated 
total  burden  in  the  cost  of  the  10,000  locks,  $920,  may  be 
as  much  as  25  per  cent,  or  $230,  too  high  or  too  low,  and  the 
true  cost  of  the  locks  instead  of  being  25  cents  may  be  any- 
where between  22.7  cents  and  27.3  cents,  a  difference  of  9 
per  cent  in  either  direction.  In  fixing  the  minimum  whole- 
sale selling  price  the  manager  will  add  the  9  per  cent  to  the 
recorded  factory  cost,  in  order  to  be  on  the  safe  side,  besides 
making  a  liberal  estimate  for  selling  and  administrative 
costs. 

He  now  begins  to  figure  the  cost  of  the  cost  system.  For  a 
production  order  involving  the  work  of  ten  men  for  forty  days, 
it  has  involved  the  writing  of  800  time  tickets,  60  job  tickets 
with  S00  entries  on  them  transcribed  from  the  time  tickets, 
10  piece  cards  with  about  20  entries  on  each,  and  one  cost 
summary  card,  with  about  10  entries.  If  the  whole  factory 
has  1000  men,  working  300  days  in  the  year,  on  light  hard- 
ware involving  a  multiplicity  of  operations  and  the  same 
clerical  work  in  proportion,  the  861  cards  will  be  multiplied 
by  7500,  making  nearly  six  and  a  half  millions  of  cards  per 
year  and  about  as  many  transcriptions  from  one  card  to 
another. 

No  time  study  or  motion  study  of  clerical  work  has  been 
made  and  the  cost  of  cost-keeping  has  not  been  segregated 
from  the  cost  of  making  up  the  pay  roll,  doing  the  ordinary 
bookkeeping,  and  making  statistical  records,  but  the  man- 
ager makes  a  rough  guess  that  there  will  be  6,000,000  cards 
handled  in  a  year,  that  one  minute's  time  on  the  average  will 
be  spent  on  each,  making  100,000  hours  of  clerical  labor,  at 
20  cents  per  hour  =  $20,000  cost  of  the  cost  system  per 
year. 

The  manager,  while  startled  at  the  figure,  has  more  impor- 
tant matters  in  hand  than  studying  the  merits  of  cost  systems, 
so  he  turns  the  job  over  to  a  scientific  management  expert, 
for  study  and  report  on  the  questions  whether  this  cost  system 
is  suitable  for  the  requirements  of  the  business,  and  whether 
or  not  its  cost  can  be  reduced. 

The  expert  is  not  a  cost  accountant,  which  is  probably  to 
his  advantage,  for  he  has  nothing  to  unlearn. 

He  starts  his  investigation  by  getting  acquainted  with  all 


the  facts  that  are  available  in  connection  with  the  cost  system 
as  applied  to  these  10,000  locks.  He  finds  the  time  tickets, 
pay  rolls,  job  tickets,  stores,  issue  cards,  piece  cost  cards,  and 
cost  summary,  all  leading  up  to  the  final  conclusion,  that  the 
cost  of  these  locks,  packed  and  delivered  to  the  warehouse  is 
25  cents  each.  He  finds  the  theory  or  theories  on  which  the 
cost  system  is  based,  viz.,  that  the  cost  of  a  lock  is  the  sum 
total  of  the  cost  of  every  machine  or  manual  operation  on 
every  piece,  and  the  cost  of  every  piece  of  raw  material 
that  enters  into  the  lock,  and  that  each  piece  and  each 
operation  or  job  is  saddled  with  what  is  supposed  to 
be  its  proper  share  of  the  "  burden  "  or  general  expenses. 
of  running  the  factory,  including  administration  and 
supervision,  planning,  clerical  work,  power,  heat,  light, 
lubrication,  internal  transportation,  services  of  watch- 
men and  cleaners,  storekeepers,  messengers,  stationery, 
and  other  supplies  for  the  factory  or  office,  besides  a  charge 
for  depreciation  due  to  wear  and  tear,  obsolescence  and  inad- 
equacy and  a  charge  for  interest  on  the  investment  in  the 
factory  and  its  operations.  He  examines  the  theory  and 
method  of  allotment  of  the  burden,  and  finds  that  the  old- 
fashioned  and  grossly  inaccurate  methods  "  percentage  on 
direct  labor  "  and  "  man-hour,"  have  been  rejected  and  the 
more  modern  and  more  accurate  normal  machine-hour  rate 
method  adopted.  The  method  of  fixing  the  rates  for  the 
several  machines  and  production  centers  is  investigated 
and  approved. 

The  first  criticism  he  makes  is  that  the  estimated  normal 
number  of  hours  of  operation  of  the  various  machines  in  a 
year  is  only  a  guess,  and  that  there  are  no  available  statistics 
by  which  the  estimate  might  be  checked.  1  his  defect,  how- 
ever, will  be  corrected  in  time.  The  probable  error  of  the 
estimate  is  not  serious  and  is  on  the  right  side,  that  is  it  tends 
to  make  the  recorded  cost  greater  than  the  true  or  approx- 
imately true  cost. 

The  next  minor  criticism  is  that  the  whole  burden  is  dis- 
tributed on  the  machine-hour  rates,  whereas  a  more  strictly 
accurate  accounting  would  distribute  on  this  basis  only  that 
portion  of  the  burden  that  had  a  relation  to  the  machine 
hours,  distributing  the  rest  of  it  partly  on  material  and  partly 
as  a  job  charge  for  clerical  and  supervisory  service,  inde- 
pendent of  the  time  the  job  lasted.  This  refinement,  however, 
in  a  general  hardware  manufacturing  business,  where  nearly 
all  the  work  is  done  in  large  lots  and  each  job  usually  lasts 
several  days  or  weeks,  is  probably  not  necessary.  The 
material  burden  may  be  included  in  the  prices  charged  by  the 
stores  to  the  factory,  and  this  avoids  the  trouble  of  entering 
it  on  the  job  ticket. 

So  far  as  the  theory  and  accuracy  of  the  cost  system  is 
concerned  with  the  exception  of  the  two  minor  objections 
stated  above,  the  expert  finds  no  fault  with  it,  but  in  regard  to 
the  mechanism  for  carrying  out  the  system  he  finds  it  unnec- 
essarily complex  and  troublesome.  The  first  important  objec- 
tion is  that  the  use  of  the  daily  time  ticket  No.  2  and  the 
transcribing  of  the  figures  on  it  to  60  job  tickets  involves  a 
needless  waste  of  labor.  He  recommends  for  it  the  substi- 
tution of  the  combined  job  and  weekly  time  ticket  No.  6. 

Continuing  the  investigation  he  has  all  the  records  tran- 


PROBLEMS  AND   DIFFICULTIES.     STANDARD  COST 


115 


scribed  onto  160  job  tickets  in  order  that  they  may  be  analyzed 
and  conclusions  drawn  from  them.  He  subdivides  the  pro- 
duction order  for  10,000  locks  into  ten  orders  for  1000  each, 
and  makes  a  tabulation  of  the  material,  labor  and  burden 
cost  of  each  of  the  ten  lots.  Since  each  lock  requires  exactly 
the  same  amount  of  material,  the  cost  of  material  for  each  of 
the  ten  lots  is  the  same,  and  since  the  work  is  done  and  paid 
for  on  the  task  and  bonus  system,  after  numerous  time  studies 
have  been  made  to  determine  the  proper  task  and  the  men 
have  become  so  skilled  that  they  always  earn  their  bonus,  the 
daily  variation  in  the  men's  wages  is  slight,  while  there  is 
almost  no  variation  in  the  total  labor  cost  from  week  to  week 
or  from  one  lot  of  1000  to  another.  The  machine  hours  also 
are  practically  uniform  with  each  lot,  and,  therefore,  the 
burden  charge  has  the  same  uniformity.  If  the  total  burden 
charge  for  the  10,000  locks  is  S920,  and  the  burden  computed 
for  each  lot  of  1000  locks  ranges  only  from  890  to  $94,  what 
is  the  use,  he  says,  of  computing  the  individual  burdens  on 
each  one  of  the  60  operations?  If  we  obtain  the  labor  and 
burden  costs  of  each  operation  on  the  first  1000  locks  on  the 
combined  job  and  weekly  time-card  system,  what  is  the  use 
of  continuing  this  elaborate  and  costly  system  for  the  other 
9000,  provided  no  change  in  the  machine  methods  or  labor 
conditions  have  taken  place? 

It  is  desirable  to  know,  for  statistical  purposes,  and  to 
study  the  comparative  results  at  different  times  and  with 
different  machine  methods,  the  cost  of  each  piece  and  of  each 
operation  on  each  piece  of  lock  X-45,  but  this  can  be  deter- 
mined with  all  the  needed  accuracy  just  as  well  on  1000  locks 
as  on  10,000. 

The  expert  then  recommends  the  following  modifications 
of  the  cost  system.  Have  the  Production  Order  read  as 
follows : 


Production  Order  No.  1117 
Make  10,000  locks,  style  X  -45 


Date  2/20/17 


Obtain  detailed  costs,  including  burden,  of  each  operation 
on  the  first  1000  or  1500  locks  by  the  combined  job  and 
weekly  time-card  system  (No.  6).  For  the  remainder  use 
weekly  time  tickets  only  (No.  3),  without  job  tickets,  obtain- 
ing labor  cost  only,  to  be  charged  to  the  production  order 
No.  1117.  The  weekly  time  tickets  will  have  the  following 
information : 


Production  Order  1, 

17 

(continuation) 

wee 

k  ending  3/17/17 

Workman's  No.    156 

Workman's  name  J. 

Jones 

Machine  No.    13 

Hours  54 

Pieces  made   1 500 

Piece  rate  cents  .  09 

13.50 

Bonus  30% 

4.05 

Wages 

17.55 

Defective  pieces 

Symbol  AEF-Dg 

If  the  man  works  on  more  than  one  machine  or  on  more 
than  one  operation  during  the  week  the  entries  on  the  card 
may  appear  thus: 


Machine  No. 

B 

I.  13 

L  13 

Total 

Symbol 

AEF,  Fg. 

AEF,  Dg. 

AEH,  Dg. 

Hours 

24 

20 

10 

54 

Pieces 

1200- 

560 

300 

Piece  rate 

0.9 

0  8 

Hourly  pate,  cents 

30 

Wages 

$7.20 

$5.04 

$2.40 

Bonus 

1.51 

.72 

$7.20 

$6  55 

$3,12 

$16  87 

Piece  Cost  Cards  and  Cost  Summary  Cards  will  be  made  up 
from  the  job  tickets  of  the  first  lot  only,  and  from  these  the 
burden  per  100  or  per  1000  locks  will  be  calculated,  and  this 
burden  will  be  considered  the  standard  burden  charge  on 
these  locks  as  long  as  the  piece  rates  of  the  various  operations 
remain  unchanged  and  the  weekly  earnings  of  the  men  when 
working  full  time  remain  fairly  constant.  The  final  cost  of 
the  10,000  locks,  at  which  they  are  to  be  charged  to  the  ware- 
house, is  then  made  up  as  follows: 


Material: 

As  per  stores  issue  cards 
Labor: 

Total  of  all  the  time  tickets  (by  adding  machine) 
Burden: 

10,000  locks  (Standard  burden  9.20  per  100) 


Per  100  Locks. 


$5  00 
10.80 
9  20 


25  00 


The  machine  numbers  and  machine  hours  are  entered  on 
the  weekly  time  tickets  so  that  they  may  be  entered  in  the 
machine  time  record,  which  is  kept  for  the  purpose  of  com- 
puting the  loss  due  to  idle  time  of  machinery,  and  the  number 
of  hours  the  machines  will  probably  run  in  a  normal  year, 
which  is  used  in  establishing  the  normal  machine-hour  rate. 

The  next  time  a  production  order  for  the  same  style  of  locks 
is  run  through  the  factory  it  will  not  be  necessary  to  make  job 
tickets  for  a  portion  of  the  order  unless  there  has  been  a 
change  in  the  manufacturing  method,  in  the  piece  rates  or 
in  the  speed  of  the  machines.  The  weekly  time  ticket  gives 
all  the  information  required  for  pay  roll,  statistical  and  ac- 
counting purposes,  and  the  burden  is  added  only  when  the 
order  is  finished,  at  the  standard  rate  determined  when  the 
previous  order  was  going  through  the  factory.  By  these 
modifications  of  the  cost  system  the  cost  of  operating  it  will 
be  greatly  lessened. 

PROBLEM.     THE  FACTORY  COST  OF  STEAM  ENGINES 
AND   OF   STEAM   TURBINES 

Suppose  that  a  factory  is  equipped  for  the  manufacture  of 
Corliss  engines,  with  a  total  investment  amounting  to 
$200,000,  subdivided  as  follows: 

Machinery  and  other  equipment,  including  power 

plant  $100,000 

Land,  $10,000;   Building,  $20,000;   all  other  asaets 

less  liabilities,  $70,000  100,000 


$200,000 


116 


BOOKKEEPING  AXD   COST  ACCOUNTING 


Case  A.  Suppose  that  in  a  fairly  good  year  the  total 
product  of  the  factory  was  sold  for  $200,000,  made  up  of 
factory  cost,  $170,000;  selling  expense,  $10,000;  profit, 
$20,000,  and  that  the  factory  cost  was  shown  by  the  books 
to  consist  of  the  following  items : 


Interest  on  investment  at  5% 

$10,000 

Taxes  and  Insurance,  2M%  on 

120,000 

3,000 

Depreciation  of  Building  5% 

1.000 

Reserve  for  Depreciation  of  Equipment,  6^ 

6.000 

$20,000 

Power  Plant  Expense: 

Labor 

2,000 

Fuel  and  Supplies 

2,000 

Current  Repairs 

1,000 

5,000 

Machinery,  current  repairs 

3.000 

Tool  room  expenses 

4,000 

Drawings  and  Patterns 

3.000 

10.000 

Superintendence 

5,000 

Planning  Room 

5,000 

Office  Expense 

5,000 

15,000 

Other  Indirect  Labor 
Miscellaneous  Supplies 

15,000 
5,000 

Total  Indirect  Expense 

70,000 

Direct  Labor 

70,000 

Direct  Material 

30,000 

Total  Factory  Cost 

$170,000 

Suppose  that  in  this  year  the  factory  machinery  is  on  the 
average  30  per  cent  idle,  on  account  of  the  impossibility  of 
an  engine  works  having  the  production  of  the  several  machines 
so  perfectly  balanced  that  every  machine  will  be  employed 
continuously  the  whole  time. 

Case  B.  Suppose  that  in  another  year  of  exceptionally 
brisk  business  it  is  possible  to  reduce  the  idle  machine  time 
to  such  an  amount  that  the  factory  handles  20  per  cent  more 
material,  and  uses  20  per  cent  more  direct  labor,  without 
any  increase  of  the  indirect  expense.  The  factory  cost  then 
will  be 


Indirect  Expense 
Direct  Labor 
Direct  Material 


$70,000 
84,000 
36,000 

$190,000 


and  the  total  sales  will  also  be  increased  20  per  cent,  or  to 
$240,000  without  any  increase  of  the  selling  expense,  the 
profit  and  loss  account  showing: 


Grots  Sales 
Selling  Expense 


Factory  Cost 


Profit 


$40,000 


Case  C.  Suppose  that  a  few  years  later  the  advent  of  the 
steam  turbine  has  reduced  the  demand  for  Corliss  engines 
to  such  an  extent  that  it  is  no  longer  possible  to  sell  the  larger 
sizes  of  them  in  competition  with  larger  factories  which  are 
able  to  build  them  cheaper,  and,  in  consequence,  the  larger 
planing  and  boring  machines  remain  idle  a  whole  year;  the 
smaller  sized  engines  for  which  there  is  still  some  demand 


continuing  to  be  built,  but  in  smaller  numbers,  so  that  the 
total  direct  labor  is  cut  down  to  $35,000,  and  the  direct  mate- 
rial to  $15,000,  and  the  sales  to  $100,000,  while  the  indirect 
expenses,  which  have  been  pared  down  as  much  as  possible, 
appear  as  follows: 


Interest,  Taxes  and  Depreciation  as  befoie 

S20.UUU 

Power  Plant  Expense 

4,000 

Machinery,  current  repairs 

2.000 

Tool  Room  Expenses 

2,000 

Drawings  and  Patterns 

1,000 

Superintendence,  Planning  Room,  Office  Expenses 

1  2,000 

Other  Indirect  Labor 

10,000 

Miscellaneous  Supplies 

3,000 

Total  Indirect  Expense  $54,000 

Adding  direct   labor,    $35,000,    and   cLrect   material, 

$15,000  50,000 


Total  Factory  Cost 
Selling  Expense 


Selling  Price 
Loss 


$104,000 
10,000 


$114,000 
100,000 


$14,000 


SCHMABY 


Case  A 

Case  B 

Case  C 

Material 
Direct  Labor 
Indirect  Expense 

$30,000 
70,000 
70,000 

$36,000 
84,000 
70.000 

$15,000 
35.000 
54,000 

Factory  Cost 
Selling  Expense 
Profit 

$170,000 

10,000 
20.000 

$190,000 

10,000 
40.000 

$104,000 

10.000 

Loss  14,000 

Factory  Cost 

Per  cent  of  Selling  Price 

$200,000 

85 

$240,000 

79  2 

$100,000 
104 

Indirect  Expenses  expressed  in  percentages 


Case  A 

Case  B 

Case  C 

Of  Material 

Of  Labor 

Of  Material  and  Labor 

233  3 

100  0 
70  0 

194  4 
83.3 
58  3 

360  0 

154    5 
108  0 

Several  problems  arise  in  connection  with  the  figures  of 
cost  shown  by  the  book  entries  of  these  three  cases  A,  B,  C. 

1.  Can  the  recorded  factory  costs  be  used  as  a  basis  for 
fixing  selling  prices?  Answer:  No,  the  selling  prices  are  fixed 
by  market  conditions  and  not  by  the  apparent  factory  costs. 

2.  Can  these  costs  be  used  to  determine  the  inventory  value 
of  the  engines  remaining  unsold  at  the  end  of  either  of  the 
three  years?  Answer:  They  can  in  Case  A,  for  in  that  year 
factory  conditions  were  normal,  and  the  book  cost  of  the 
engines  is  probably  as  near  an  approximation  to  their  value 
as  merchandise  in  the  warehouse,  ready  for  sale,  as  can  be 
obtained  by  any  fair  method  of  appraisal,  but  in  ease  B 
the  engines  are  worth  more  than  their  apparent  cost,  and 
they  should  be  valued  on  the  basis  of  the  factory  conditions 
of  Case  A,  that  is  on  the  basis  of  normal  cost.  In  case  C 
the  engines  are  worth  less  than  their  apparent  book  cost, 
because  that  is  higher  than  the  selling  price,  even  if  the  cost 


PROBLEMS  AND   DIFFICULTIES.     STANDARD  COST 


117 


of  selling  them  was  reduced  to  nothing.  The  engines  remain- 
ing unsold  are  worth  no  more  than  they  would  be  if  they  had 
been  made  under  the  conditions  of  Case  A. 

3.  What  should  be  the  recorded  costs  of  the  engines  in  cases 
B  and  C  to  be  used  in  charging  them  to  the  selling  department 
at  factory  cost,  or  in  valuing  them  for  the  inventory?  Answer: 
Assuming  that  the  direct  labor  and  material  cost  the  same  per 
engine  in  all  three  cases,  then  the  engines  should  be  charged 
or  valued  at  the  sum  of  the  direct  labor  and  material  plus 
the  normal  burden  or  indirect  expense  per  engines  found  in 
Case  A.  This  would  make  the  total  cost  to  be  charged 
against  the  engines  as  follows  for  the  three  years: 


Case  A 

Case  B 

Case  C 

Material 
Labor 
Burden,  100% 

$30,000 
70.000 
70,000 

$36,000 
84.000 
84,000 

$15,000 
35,000 
35,000 

Factory  Cost 
Selling  Expense 

170,000 
10,000 

204,000 
10,000 

85,000 
10,000 

Total  Cost 
Selling  Price 

180,000 
200,000 

214,000 
240,000 

95,000 
100,000 

Profit 

20,000 

26,000 

5,000 

4.  How  do  you  explain  the  profit  of  $26,000  instead  of 
$40,000  in  Case  B  and  the  profit  of  $5000  instead  of  a  loss 
of  $14,000,  as  shown  in  the  former  estimate?  Answer: 
The  profits  of  $26,000  and  $5000  are  merchandise  profits  of 
the  selling  department,  which  in  Case  B  bought  the  engines 
from  the  factory  for  $204,000,  spent  $10,000  in  selling  ex- 
penses, sold  them  for  $240,000  and  made  $26,000  profit;  and 
in  Case  C,  bought  for  $S5,000,  selling  expense,  $10,000,  sold 
for  $100,000,  making  $5000  profit.  The  difference  between 
$20,000  and  $40,000  is  gain  in  the  factory  due  to  running 
overtime  or  with  a  larger  labor  force,  caused  either  by  greater 
activity  of  the  selling  force,  the  increased  reputation  of  the 
engines,  or  general  improvement  in  the  demand  for  engines. 
This  difference  of  $14,000  may  appear  in  the  factory  books  as  a 
credit  balance  of  Burden  account,  as  overearned  burden,  and 
in  the  general  books  as  a  credit  to  Profit  and  Loss  Account. 
The  factory  books  would  show  the  following: 

Dr.  Burden  Cr. 


To  various  expense  accts. 
To  company,  to  transfer 

balance,  overearned 

burden 


$70,000 


By  charges  to  Engine  Costs 


$84,000 


The  company's  general  books  would  show: 

Dr.  Profit  and  Loss 


Cr. 


By  factory,  overearned 

burden 
Sales,  profits  on  sales 


$14,000 
26,000 


Dr. 


Factory 


To  Profit  and  Loss,  transfer 
overearned     burden     to 
Company 


14.000 


In  Case  C,  the  difference  between  $5000  profit  and  $14,000 
loss,  or  $19,000,  is  the  loss  due  to  idleness  of  men  and  machines 
in  the  factory  caused  by  the  decreased  demand  for  steam 
engines,  consequent  upon  the  increased  use  of  steam  turbines. 
It  would  appear  in  the  factory  books  as  below: 


Dr. 


Burden 


Cr 


To  various  expense  accts. 

$54,000 

By  charges  to  Engine  costs 

By  Company,  to  transfer 

balance,  unearned  bur- 

$35,000 

den 

19,000 

and  in  the  Company  books: 

Dr.  Profit  and  Loss 


Cr. 


To  Factory,  loss  due  to  un- 
earned burden 


By  Sales  a/c,  profit  on  sales 


5.U00 


Factory 


Cr 


By  Profit  and  Loss,  unearnrd 
burden 


I". 


5.  Do  the  figures  for  overearned  or  unearned  burden  con- 
stitute an  index  of  the  efficiency  of  the  factory  or  of  its  man- 
agement? Answer:  Not  at  all.  The  efficiency  is  practically 
the  same  in  each  case  as  far  as  the  figures  show,  since  the 
direct  labor  and  material  costs  bear  the  same  proportion  to 
the  selling  price  of  the  engines  in  all  three  cases. 

6.  What  do  figures  of  overearned  or  unearned  burden  indi- 
cate? Answer:  They  may,  and  generally  do,  indicate  less  or 
greater  idleness  of  the  machinery  due  to  business  conditions 
or  to  greater  or  less  activity  of  the  sales  department,  or  to 
underestimates  or  overestimates  of  what  is  the  normal  bur- 
den of  the  several  machines.  Only  a  detailed  investigation 
of  all  the  facts  can  determine  which. 

7.  It  appears  that  the  Company's  total  profits  on  manu- 
facture and  sales  of  engines  were  $40,000  in  Case  B,  and  the 
loss  $14,000  in  Case  C,  whether  they  are  figured  by  the  first 
method  or  by  the  second,  in  which  the  $40,000  in  Case  B 
is  made  up  of  $26,000+$14,000,  and  the  $14,000  in  Case  C  is 
made  up  of  $19,000 -$5000.  What  then  is  the  use  of  com- 
plicating the  bookkeeping  by  dividing  the  profits  or  losses 
into  two  parts  and  of  computing  overearned  or  unearned 
burden?  Answer:  The  advantage  is  in  giving  the  owners  a 
greater  amount  of  desirable  information  as  to  whether  the 
profits  and  losses  are  due  to  the  factory,  to  the  selling  depart- 
ment, or  to  general  business  conditions,  and  as  to  the  cost  of ' 
idleness  in  the  factory.  The  subdivision  is  of  especial  advan- 
tage in  giving  more  accurate  inventory  values  of  the  product 
remaining  unsold  at  the  end  of  the  year  and  of  the  work  in 
process,  on  which  inventories  the  profit  and  loss  estimates 
depend. 

8.  Is  the  $14,000  loss  in  Case  C  the  actual  loss  in  the  engine 
business  during  the  year.  Answer:  By  no  means;  this 
apparent  loss,  as  shown  by  the  books,  includes  as  one  of  the 
elements  a  charge  for  reserve  for  depreciation  of  6  per  cent 
on  $100,000  =  86000,  but  as  some  of  the  heavier  and  more 


118 


BOOKKEEPING  AND   COST  ACCOUNTING 


costly  machinery  has  been  thrown  entirely  out  of  service, 
probably  permanently,  by  the  cessation  of  demand  for  large 
engines,  these  machines,  costing,  say,  $20,000,  have  suddenly 
depreciated  perhaps  $10,000  more  than  the  amount  that  has 
accrued  to  their  credit  in  the  reserve  account.  There  has 
also  been  a  large  depreciation  in  the  value  of  the  drawings, 
patterns,  jigs  and  special  tools  used  in  manufacture  of  the 
large  engines,  their  value  now  being  practically  nothing. 
The  total  loss,  therefore,  instead  of  being  $14,000  is  more 
likely  to  be  double  that  figure. 

Continuing  the  record  of  these  supposition  cases,  we  may 
next  suppose  that  at  the  end  of  the  year  of  Case  C  the  account- 
ant presents  to  the  directors  of  the  company  the  tabulated 
statement  above  given  showing  a  loss  of  $14,000  on  the  year's 
business,  and  also  statements  of  the  assets  and  liabilities  of 
the  concern  at  the  beginning  and  end  of  the  year,  which  may 
be  condensed  as  follows: 

Statement  Jan.   I 
Net  Resources 


Real  Estate  and  Equipment 
Less  Depreciation  Reserve 

$130,000 
30,000 

100,000 
80,000 

Other  assets  less  liabilities 

$180,000 

Capital  Stock  and  Surplus 

Capital  stock 
Surplus 

$150,000 
30,000 

$180,000 

Statement  Dec.  3 1 
Net  Resources 

Real  Estate  and  Equipment 
Less  depreciation  reserve 

$130,000 
37,000 

93,000 
73,000 

Other  assets,  less  liabilities 

166.000 

Capital  Stock  and  Surplus 

Capital  Stock 
Surplus 

$150,000 
16.000 

$166,000 

The  president  says:  Notwithstanding  the  loss  of  $14,000 
and  the  consequent  reduction  of  our  surplus  from  $30,000 
to  $16,000,  as  shown  in  the  books,  our  financial  position  is 
good.  We  have  no  notes  payable  outstanding,  $10,000  cash 
in  the  bank,  and  $10,000  invested  in  bonds  that  are  good 
collateral  to  borrow  on.  The  question  is  shall  we  declare 
our  usual  6  per  cent  dividend,  which  will  take  $9000  and 
reduce  the  surplus  on  the  books  to  $7000? 

The  general  manager  replies:  "  The  books  do  not  tell  the 
whole  story.     The  accountant  has  charged  only  $7000  to 


depreciation  reserve  during  the  year,  taking  no  account  of 
the  fact  that  $20,000  worth  of  our  best  machinery  is  now  per- 
manently idle,  and  ought  to  be  sold  at  a  quarter  of  its  cost, 
in  order  to  save  insurance  and  taxes,  and  to  make  room  for 
other  machinery,  if  we  can  find  some  other  product  to  make. 
Unless  our  sales  department  can  get  more  business  for  the 
factory  we  had  better  be  preparing  for  going  into  liquidation, 
rather  than  be  declaring  a  dividend." 

The  accountant  was  requested  to  answer  the  general  man- 
ager, and  he  said:  "  The  books  never  do  tell  the  whole  story. 
It  is  impossible  that  they  can.  They  record  the  facts  of 
actual  transactions,  such  as  the  receipts  and  payments  of 
cash,  and  the  purchase  and  sale  of  goods;  they  record  our 
guesses  as  to  depreciation  and  depreciation  reserve;  but 
they  do  not  record  other  things,  such  as  appreciation  of  real 
estate  and  changes  in  market  value  of  materials  in  store. 
Our  apparent  surplus  of  $16,000  is  based  on  the  theory  that 
the  net  value  of  real  estate  and  equipment  is  $93,000,  its 
actual  depreciation  below  its  original  cost  being  the  $37,000 
accumulation  in  the  reserve  for  depreciation  account.  This 
reserve  account  is  based  on  a  pure  hypothesis,  that  6  per  cent 
per  annum  on  original  cost  will  cover  the  average  deprecia- 
tion on  all  the  machinery,  during  the  ^hole  of  its  life,  includ- 
ing the  depreciation  due  to  obsolescence  and  inadequacy. 
It  probably  was  fixed  at  this  figure  without  any  thought  that 
the  whole  business  of  manufacturing  engines  was  apt  to 
become  obsolescent,  and  that  the  heavier  machines  which 
might  reasonably  have  been  expected  to  have  a  life  of  30  or 
40  years  would  become  out  of  date  in  less  than  10  years. 
Whether  or  not  the  $37,000  in  the  reserve  account  covers 
the  total  depreciation  at  the  present  time  cannot  be  told  by 
any  system  of  accounting.  The  only  way  to  determine  it  is 
to  have  an  appraisal  made,  and  even  an  appraisal  at  the 
present  time  will  only  be  an  approximation  to  the  true  value 
of  the  heavy  machines.  They  are  an  expense  and  not  an 
asset  if  they  are  kept  standing  idle;  they  are  worth  their 
secondhand  or  scrap  value  if  they  are  going  to  be  sold,  and 
they  may  be  worth  all  that  they  cost  if  they  are  going  to  be 
used  in  making  other  products.  There  is  no  use  in  changing 
their  value  on  the  books  until  we  know  what  is  going  to  be 
done  with  them." 

The  president  then  said:  "  The  accountant  is  right.  The 
apparent  surplus  of  $16,000  is  only  a  book  figure.  It  will  be 
reduced  to  nothing  at  the  end  of  next  year  if  we  sell  the  large 
idle  machines  at  their  present  market  value  and  continue  the 
engine  business  at  its  present  rate  of  sales  $100,000  a  year; 
it  will  be  turned  into  a  deficit  of  perhaps  $40,000  or  $50,000  if 
we  liquidate  the  concern,  either  selling  the  business  as  a 
whole  or  selling  the  assets  in  parcels ;  it  may  be  doubled  if  we 
continue  in  business,  making  other  things  which  will  keep  our 
machinery  running.  The  immediate  question  before  us  is 
that  of  declaring  a  dividend.  The  surplus,  whatever  it  may 
be,  has  been  accumulated  by  keeping  the  dividends  low, 
returning  to  the  stockholders  only  a  portion  of  the  net  earn- 
ings in  order  not  to  have  to  stop  dividends  during  a  year  or 
two  of  poor  business.  It  would  disappoint  and  embarrass 
the  widows  and  orphans  among  our  stockholders  if  we  sus- 
pended dividends.     If  we  decide  to  liquidate  we  may  as  well 


PROBLEMS  AND  DIFFICULTIES   IN   COST  ACCOUNTING 


119 


pay  the  $9000  dividend  now.  We  have  the  cash  to  pay  it 
with,  and  it  will  only  be  an  installment  of  the  larger  dividend 
that  will  be  paid  when  the  concern  is  wound  up. 

"  I  have  had  an  appraisal  made,  and  find  the  depreciation 
reserve  on  the  books  is  $20,000  larger  than  the  actual  depre- 
ciation of  our  assets,  basing  the  appraisal  on  the  present  value 
of  the  plant  to  a  going  concern,  its  cost  of  reproduction  less  a 
reasonable  reduction  for  wear  and  tear;  but  it  is  $30,000  less 
than  the  probable  depreciation  if  we  intend  to  retire  from 
business  and  sell  the  assets  for  what  they  will  bring. 

"  I  now  have  a  proposition  to  make  for  continuing  the  busi- 
ness and  enlarging  it.  The  A.  B.  Steam  Turbine  Co.  has 
been  building  turbines  for  three  years,  and  after  overcoming 
many  difficulties  has  now  established  an  excellent  reputation 
for  its  machines,  but  it  has  used  up  all  its  available  cash  and 
credit  resources  and  is  deeply  in  debt.  I  have  made  an 
arrangement  with  the  company  and  its  creditors,  subject 
to  your  approval,  to  take  over  all  its  business.  It  will 
transfer  to  us  its  drawings,  patterns,  machinery,  including 
some  costly  special  machinery,  and  its  stock  of  materials, 
supplies  and  finished  parts,  for  $50,000  payable  in  stock  of 
our  company  at  par,  and  will  give  to  us  an  exclusive  license 
under  its  patents,  for  an  annual  license  or  royalty  fee  of 
$10,000  payable  cash  in  advance  each  year,  with  the  pro- 
vision that  when  our  sales  of  turbines  amount  to  over 
$200,000  a  year,  there  shall  be  an  additional  payment  of  5 
'per  cent  on  the  excess.  We  can  also  secure  the  services  of 
the  chief  engineer  and  the  chief  salesman  of  the  company  at 
reasonable  salaries.  I  have  had  reports  on  the  turbine  and 
on  the  machinery  by  two  turbine  experts,  and  they  assure 
me  that  the  proposition  is  a  bargain.  I  propose  that  we 
have  a  committee  of  three,  two  of  our  directors  and  our  fac- 
tory superintendent,  to  examine  into  the  matter  and  report 
at  a  special  meeting  to  be  called  by  them  next  week. 

"  I  may  say  further  that  if  we  go  into  this  business  it  will  be 
advisable  to  manufacture  turbines  in  advance  of  orders,  so 
that  we  may  have  a  few  of  each  size,  either  completed,  or 
nearly  completed,  on  hand  for  prompt  delivery.  We  should 
also  carry  quite  a  large  stock  of  castings  and  other  material 
and  should  invest  some  money  in  advertising  and  in  sales- 
men's expenses.  This  will  call  for  an  additional  issue  of 
stock  and  I  am  ready  to  subscribe  for  $20,000  of  it,  payable 
in  installments  as  it  may  be  needed." 

The  dividend  was  declared,  the  committee  appointed  and 
the  next  week  the  proposition  was  accepted  and  the  new 
business  was  taken  over.  The  accountant  was  instructed 
to  make  a  new  statement  of  assets  and  liabilities  and  to  bring 
in  a  scheme  for  a  system  of  accounting  which  would  show 
separately  the  factory  costs  of  engines  and  turbines  of  the 
several  sizes. 


SCIENTIFIC   MANAGEMENT 

That  form  of  management  that  conducts  a  business  or 
affairs  by  standards  obtained  through  systematic  research, 
experiment  or  reasoning. — Geo.  D.  Babcock,  1915. 

The  laws  of  management  worked  out  by  Taylor  and  his  dis- 
ciples are  as  fundamental  as  those  of  falling  bodies.  No  manager 
or  management  can  avoid  making  use  of  them  in  some  form  oi 
other  if  they  are  honestly  out  for  the  combination  "  high  waged 
and  low  labor  costs." — H.  F.  L.  Orcutt,  Engineering  (London) 
Sept.  7,  1917. 

Costing  and  Scientific  Management.  Scientific  management  in 
a  system  based  on  the  conception  that  the  whole  routine  of  the 
works,  down  to  the  last  detail  of  every  operation,  is  organized 
by  the  management,  so  that  confusion,  over-lapping,  delay  and 
waste  (both  human  and  material)  are  avoided,  and  the  course  of 
the  work  is  planned  to  run  as  smoothly,  rapidly  and  efficiently 
as  possible.  This  system  applies  not  only  to  works  manage- 
ment, but  also  to  costing  and  all  the  other  accessories.  There  is 
yet  little   recognition  in    this    country  [Great   Britain)  of    the 


The  Pyramid  of  Scientific  Management 

necessity  that  costing  should  be  undertaken  by  those  who  have  a 
real  knowledge  of  the  work  in  question.  Generally  there  is  more 
improvement  possible  in  the  arranging  for  costing  than  in  any 
other  department  of  works.  Costing  can  and  should  be  the 
greatest  asset  to  the  management;  it  should  be  the  pulse  of  the 
whole  organization,  instead  of  being  merely  an  approximately 
accurate  record  of  performance  in  the  past — sometimes  hi  the 
distant  past. — From  a  paper  on  "  The  Question  of  Scientific 
Management,"  by  James  Richardson,  Engineering,  Dec.  21,  1917. 
Scientific  management  is  really  intensive  thinking.  It  means 
that  every  problem  shall   be  solved   intellectually  and   not  by 

means  of  trial  and  error and  we  may  add  to  this  that  a 

large  percentage  of  mankind  not  only  hates  such  a  practice,  but 
is  quite  incapable  of  carrying  it  on. — From  an  editorial  in  the 
same  issue  of  Engineering. 


CHAPTER  XIII 
USES  OF  COSTS.     VARIOUS  OPINIONS  ABOUT  COSTS 


CONCLUSIONS  TO  BE  DRAWN  FROM  COST  STATISTICS 

When  the  directors  of  a  company  have  a  sheet  of  cost 
statistics  of  the  business  laid  before  them  what  chief  facts 
should  be  studied  and  what  conclusions  may  be  drawn'.' 

The  cost  statistics  should  show  the  factory  costs  of  labor, 
material  and  burden  for  each  of  the  several  classes  of  product; 
they  should  also  show  the  quantity  of  product  of  each  class. 

The  general  books,  or  the  books  of  the  sales  department 
should  show  the  amount  of  sales,  the  cost  of  selling  and  the 
profits  realized  on  each  class  of  product.  The  factory  costs, 
quantity  of  product,  selling  cost  and  profit  (or  loss)  on  each 
class  of  product  should  all  be  considered  together,  and  the 
relation  of  profits  to  costs  and  to  quantity  should  be  studied. 

The  principal  object  of  the  study  is  to  determine  what 
course  of  action  will  lead  to  the  greatest  profits  in  the  future, 
both  the  immediate  future  and  the  distant  future. 

The  objects  of  a  business  are:  1,  to  make  profits  that  may 
be  used  to  pay  dividends;  2,  to  organize  and  operate  the 
business  so  that  it  may  have  a  long  life,  even  when  subject 
to  strong  competition.  The  condition  of  long  life  is  growth. 
When  growth  ceases  and  stagnation  ensues  decay  comes 
sooner  or  later. 

Cost  Keeping  should  be  not  merely  the  keeping  of  records 
of  what  goods  have  cost,  but  also  of  what  they  should  cost 
under  standard  conditions,  from  which  may  be  predicted  the 
probable  costs  in  future. 

When  actual  costs  are  notably  higher  than  standard  costs 
the  reason  why  they  are  higher  should  be  promptly  ascer- 
tained and  recorded. 

Uses  of  a  Cost  System.  1 .  To  find  the  factory  cost  of  articles 
delivered  to  the  warehouse. 

(a)  As  a  basis  for  fixing  the  price  at  which  they  shall  be  charged 
to  the  sales  department. 

(6)  As  a  basis  for  fixing  their  inventory  value. 

2.  To  find  the  cost  of  the  several  elements  that  enter  into  the 
total  cost  (viz.,  material,  labor  and  burden)  of  a  finished  article, 
of  each  part,  and  of  each  operation  on  each  part. 

3.  To  furnish  comparative  records  of  costs  of  articles  made  at 
different  times,  or  by  different  methods  of  manufacture,  or  under 
dilTerent  conditions. 

4.  To  discover  which  part  of  the  products  of  a  concern  are 
unprofitable;  in  order  to  form  a  judgment  as  whether  to  push  the 
manufacture  of  an  article  or  to  abandon  it. 

5.  To  inform  competing  manufacturers  what  our  costs  are.  in 
order  to  induce  them  to  keep  a  cost  system  and  thereby  to  dis- 
cover that  they  are  selling  goods  below  cost. 

It  is  no  satisfaction  to  a  producer  to  know  that  the  ignorance  of 
his  competitor  will  destroy  that  competitor,  if  another  equally 
ignorant  and  dangerous  follow  him.  The  only  hope  lies  in  a 
complete  education  of  all  who  enter  a  given  competitive  field, 


else  that    field  is  hazardous. — J.  Newton   Gunn,  in    "  Business 
Engineering,"  by  Alex.  C.  Humphreys,  page  479. 

The  competitor  most  to  be  feared,  while  he  lasts,  is  one  who 
does  not  know  his  costs,  nor  understand  how  to  obtain  them. — 
Henry  R.  Towne. 

Many  concerns  charge  a  certain  percentage  for  overhead 
irrespective  of  what  the  expense  really  amounts  to,  and  when  they 
take  an  annual  inventory,  are  surprised  to  find  that  their  cor- 
rected earnings  are  very  much  less  than  they  estimated.  This 
ignorance  or  carelessness  in  the  matter  of  the  correct  overhead  is, 
I  think,  responsible  for  a  great  deal  of  ruinous  competition,  and 
although  in  many  cases  the  low  bidders  fail  after  doing  business 
for  a  longer  or  shorter  period  according  to  their  resources,  there 
always  seem  to  be  some  new  ones  coming  along  so  as  to  prevent 
the  manufacturers  whose  costs  contain  all  the  cost  getting  th3 
proportion  of  business  to  which  they  are  entitled. — Gershom 
Smith,  Engineering  Magazine,  June,  1909. 

Uses  of  Cost.  An  accurate  and  reliable  knowledge  of  costs  is 
indispensable  to  success  in  closely  competitive  manufacturing 
and  merchandising  business. — S.  S.  Wheeler,  Trans.  Efficiency 
Society,  Vol.  1  (1912),  p.  175. 

The  function  of  the  cost  department  is  to  gather  information 
from  which  the  management  can  outline  its  policies. — Clinton  H. 
Scovell. 

The  main  value  of  the  knowledge  of  unit  costs  is  not  to  fix  the 
selling  price,  but  to  lead  to  methods  of  cost  reduction  and  con- 
trol.—B.  A.  Franklin,  Eng.  Mag.,  Vol.  43,  p.  421. 

A  cost  system  should  primarily  be  so  devised  as  to  give  the 
manufacturer  an  accurate  knowledge  of  his  most  costly  and  expen- 
sive operations,  so  that  he  may  know  unerringly  these  "  high 
spots  "  and  attack  them  vigorously.  The  cost  system  should 
provide  a  club  with  which  to  beat  down  costs. — C.  U.  Carpenter. 

Indirect  costs  may  amount  in  some  instances  to  as  much  as 
two  or  three  hundred  per  cent  of  direct  costs.  Failure  to  take 
them  into  consideration  may  lead  speedily  into  bankruptcy. 
— C.  B.  Thompson. 

What  do  I  want  to  know?  How  can  the  facts  best  be  obtained, 
summarized  and  averaged  so  as  to  get  the  most  out  of  them 
with  the  least  trouble  and  expense? — J.  L.  Nicholson. 

Among  the  uses  of  costs  are: 

1.  The  financial  or  accounting  use,  as  showing  how  money  was 
expended. 

2.  Comparison  with  estimated  results,  as  in  Mr.  Emerson's 
method,  the  discrepancy  between  estimated  and  actual  results 
being  regarded  as  preventable  waste. 

3.  The  technical  use,  showing  the  cost  of  every  process  on 
every  part,  enabling  a  close  check  to  be  made  on  efficiency  of 
production. 

4.  t'se  as  a  basis  for  fixing  premium  or  bonus  rates. 

5.  The  commercial  use,  as  a  basis  of  fixing  remunerative  prices, 
and  for  selecting  that  class  of  product  that  can  be  most  profit- 
ably manufactured. — A.  Hamilton  Church,  Eng.  Mag.,  Vol.  38, 
p.  185. 

It  is  the  business  of  costs  to  represent  facts  and  nothing  but 
facts. 


120 


USES  OF  COST.     VARIOUS  OPINIONS  ABOUT  COSTS 


121 


The  object  of  cost  accounts  is  to  register  and  record  every 
stage  and  step  of  production  as  they  actually  happened — it 
should  be  nothing  else. — Ibid.,  page  184. 

A  cost  system  that  represented  facts  and  nothing  but  facts 
would  be  of  little  use  except  to  the  bookkeeper.  It  might 
enable  him  to  balance  his  books  and  to  show  that  all  the 
money  expended  was  accounted  for  in  the  records.  It  might 
show  what  were  the  costs  for  labor  and  material  on  each  item 
of  product,  but  it  could  not  correctly  assign  a  burden  charge 
to  each  item,  for  such  a  charge  is  based  upon  something  more 
than  bare  facts,  it  depends  on  a  theory  of  the  method  of  dis- 
tribution of  burden,  and  on  the  application  of  that  theory  to 
estimates,  which  are  only  approximations,  and  often  very 
rough  approximations,  to  facts. 

The  true  cost  is  not  what  an  article  is  produced  for  in  good 
times,  in  bad  times,  or  the  first  time,  but  what  it  can  be  produced 
for  in  the  ordinary  average  routine  of  shop  practice. — B.  A.  Frank- 
lin, Eng.  Mag.,  Vol.  42,  p.  921. 

The  cost  of  a  thing  is  what  has  to  be  paid  to  get  it.*  The 
"  factory  cost  "  of  a  manufactured  article  is  what  it  costs 
the  owner  of  the  factory  to  get  the  article  into  the  factory 
warehouse  under  normal  shop  conditions.  It  does  not 
include  the  cost  of  storing  and  insuring  it  after  it  is  in  the 
warehouse,  nor  the  cost  of  advertising  and  selling  it.  The 
latter  are  commercial  costs,  and  in  the  accounting  system 
they  should  be  kept  entirely  separate  from  the  factory  cost. 

The  cost  of  idleness  of  machinery  caused  by  Ia-k  of  orders, 
failure  to  get  raw  material,  strikes,  or  other  iibnormal  cause 
should  not  be  charged  as  part  of  factory  cost;  it  should  be 
charged  to  Unearned  Burden,  or  to  Profit  and  Loss. 

The  general  advantages  of  any  cost  system  are: 

1.  To  reduce  costs. 

2.  To  increase  production. 

3.  To  introduce  machines  to  do  work  hitherto  done  by  hand. 

4.  To  equalize  the  output  in  each  department. 

5.  To  serve  as  a  guide  in  selling. 

6.  To  serve  as  a  guide  in  pricing. 

7.  To  serve  as  a  basis  for  judging  the  product,  efficiency  and 
diligence  of  the  workmen. 

8.  To  place  the  employer  in  a  position  to  get  a  safe  basis, 
independent  of  the  judgment  of  the  foremen  of  the  different 
departments,  on  which  to  reward  the  efficient  and  to  develop 
the  promising  but  inefficient. 

9.  To  act  as  a  moral  stimulus  to  every  workman  and  to  insure 
fair  distribution  of  reward  to  all. 

A  cost  system  will  not  tell  you  what  your  costs  should  be.  It 
will  simply  tell  you  what  your  costs  are. 

Costs  by  themselves  mean  nothing.  We  must  have  standards 
of  comparison  by  which  to  test  their  value. — "Efficient  Cost 
Keeping,"  E.  St.  Elmo  Lewis,  3d  edition,  1914,  published  by  the 
Burroughs  Adding  Machine  Co.,  Detroit,  Mich. 

Objects  of  Cost  Keeping.  1.  Determination  of  the  price 
at  which  the  product  can  lie  offered  in  the  market. 

*  One  of  the  difficulties  the  student  meets  is  the  number  of  different 
meanings  and  applications  of  the  word  "cost."  It  is  both  a  noun 
and  a  verb,  and  as  a  verb  it  seems  to  have  a  different  significance 
when  used  in  the  past,  present  and  future  tenses.  The  bookkeeper 
uses  it  in  the  past  tense.  "What  did  it  cost  to  get  this  article  into 
the  warehouse?"  He  needs  this  figure  in  order  to  balance  his  books 
and  account  for  the  expenditure.  The  factory  manager  wants  to 
know  "what  is  this  thing  costing  now;  how  can  we  reduce  costs?" 
The  owner  of  the  factory,  "What  will  this  thing  cost  next  year?" 
bo  that  he  can  fix  next  year's  prices. 


2.  Lessening  production  costs — To  attain  this  the  most 
minute  attainable  subdivision  of  cost  is  demanded. 

Production  expenses  cannot  be  reduced  in  gross,  but  must 
be  attacked  in  small  parts. 

The  experienced  cost-keeper  may  divide  the  expense  account 
into  a  hundred  or  more  subordinate  accounts,  while  the  inex- 
perienced one  may  keep  it  in  a  single  account  or  at  most  divide 
it  into  a  very  few  heads.  Henry  Roland,  Eng.  Mag.,  Vol.  16, 
p.  47. 

A  knowledge  of  the  total  cost  of  a  machine  is  of  use  only  in 
fixing  the  selling  price  or  in  taking  an  inventory.  It  is  of  no 
practical  value  in  reducing  costs.  The  information  is  too 
general. 

It  is  impossible  to  reduce  the  cost  of  a  machine  to  its  mini- 
mum figure  without  first  obtaining  an  accurate  knowledge 
of  the  time  consumed  in  the  manufacture  of  each  piece.  The 
workman  must  be  offered  some  incentive.  The  piece-work, 
premium  and  different  systems  *  are  conducive  to  this  end, 
but  should  be  used  after  and  not  before  the  acquisition  of  reli- 
able time  records.  It  is  necessary  to  know  the  cost  of  every 
operation  on  each  piece.  We  must  adopt  some  form  of  job 
ticket.— H.  M.  Norris,  Eng.  Mag.,  Vol.  16,  p.  385. 

The  cost  of  any  equipment  made  by  the  plant  itself  must 
include  its  share  of  burden. 
Installation  charges  are  one  part  of  the  cost  of  a  machine. 
Special  tools  for  a  particular  order  should  be  charged  against 
that  order. 

The  cost  of  experimental  work  should  be  made  a  deferred 
charge  which  will  not  be  absorbed  until  the  result  of  the  experi- 
mental work  are  in  actual  operation. 

Machines  and  appliances  perfected  through  experiments 
should  be  considered  as  assets,  their  theoretical  value  being  the 
sum  of  all  the  elements  of  cost  that  have  been  incurred  in  their 
behalf  during  the  cost  of  the  experiments. 

Ovr,  short  and  damage  account.  Wastes,  shrinkage,  de- 
fective work  are  charged  to  this  account,  and  it  is  credited 
with  value  received  for  any  disposition  of  the  items  charged. 
The  balance  becomes  part  of  the  indirect  expense. — J.  L.  Nichol- 
son, "Cost  Accounting  Theory  and  Practice." 

Controlling  Cost  Records.  Accounts  may  be  kept  in  the 
general  ledger,  which  should  control  the  various  items  of  pro- 
duction costs.  For  example,  accounts  should  be  kept  with 
material,  labor,  indirect  expense,  work  in  process,  and  part- 
finished  stock,  entries  being  made  to  these  accounts  in  the  same 
manner  as  if  they  were  kept  in  the  factory  ledger. — Nicholson. 

Keeping  the  various  items  of  factory  costs  in  the  general 
ledger  involves  much  unnecessary  bookkeeping.  These 
items  should  be  kept  in  the  factory  ledger,  and  the  general 
ledger  need  have  only  one  account  for  factory  operations, 
charging  it  with  all  cash  sent  to  the  factory  and  with  invoices 
certified  by  the  factory  for  payment  by  the  general  office, 
and  crediting  it,  at  factory  cost  value,  for  goods  shipped 
from  the  factory. 

What  is  "  Control  "  and  a  "  Controlling  Account "? 
These  words  are  used  by  many  authorities  on  accounting  in  a 
sense  that  is  different  from  their  ordinary  meaning.  To 
control  means  to  compel,  to  manage,  to  restrict.  In  the 
accountant's  sense  it  means  to  summarize  or  to  lump  together, 
for  example,  when  main-  expense  accounts  are  kept  in  the 
cost  records  their  totals  are  brought  together  and  entered 
in  a  single  Factory  Expense  Account  in  the  factory  or  general 

*  For  information  on  wage  systems  see  F.  W.  Taylor's  "Shop 
Management,"  F.  B.  Gilbreth's  "Primer  of  Scientific  Management," 
and  "Motion  Study."  Gantt's  "Work,  Wages  and  Profits,"  and 
Knoeppel's  "Maximum  Production." 


122 


BOOKKEEPING  AND   COST  ACCOUNTING 


ledger,  and  this  is  called  a  control  or  controlling  account.  It 
does  not  control  anything,  it  only  shows  the  totals  of  several 
minor  accounts  of  a  class. 

It  is  proper  to  expect  from  a  cost  system : 

1.  Final  costs;  that  is  the  cost  of  completed  units  of  the 
product  at  the  door  of  the  factory. 

2.  Partial  costs;  the  cost  of  component  parts,  or  costs  at  cer- 
tain stages  of  their  production. 

3.  Comparative  costs  between  one  period  and  another — like 
articles  under  different  conditions. 

4.  Costs  of  operations — direct-labor  cost,  so  that  it  shall  be 
possible  to  change  from  day  to  piece  work. 

5.  Indirect  costs  by  classes  and  groups — a  basis  for  the  dis- 
tribution of  indirect  expense.  Crude  systems  with  careful 
handling  produce  better  results  than  elaborate  systems  poorly 
run. 

The  best  plan  for  factory  organization*and  costs  can  be  evolved 
only  after  many  months  and,  perhaps,  years  of  painstaking 
development  and  modifications. 

Cost  finding  is  not  merely  the  work  of  an  accountant,  it  is  the 
work  of  an  engineer,  supplemented  by  the  best  accounting  knowl- 
edge that  he  can  command. 

Costs  have  no  value  except  in  comparison,  that  action  may  be 
directed  by  experience. 

The  end  of  cost  keeping  is  cost  reduction.  The  cost  records 
must  be  made  use  of,  or  they  are  of  no  value. — J.  N.  Gunn, 
Eng.  Mag.,  Vol.  20,  705. 

Cost  Securing — gathering  details  by  means  of  shop  order, 
requisition,  time  cards,  etc. 

Cost  Compiling — entering  the  data  on  proper  forms. 

Cost  Comparison — placing  the  latest  information  beside  other 
information. 

Cost  Analysis — thought  and  deduction  applied  to  the  cost 
comparisons. — C.  E.  Knoeppel,  Eng.  Mag.,  Vol.  33,  p.  172. 

Theories  of  Costs.  Many  of  the  questions  about  cost  and 
value  would  become  simpler  if  we  would  give  up  the  idea  that 
there  is  any  abstract  "cost"  or  "value,"  and  instead  should 
work  on  the  basis  that  the  business  of  the  accountant  and  engineer 
is  to  provide  data  which  will  enable  the  executive  to  take  action. 

There  is  no  such  thing  as  an  abstract  "  cost,"  or  if  there  is  it  is 
of  no  use  to  any  one.  Sometimes  we  want  to  know  whether  we 
have  made  or  lost  money  during  a  given  period.  In  other  cases 
we  want  to  know  how  much  our  expenses  will  be  increased  if  we 
put  some  by-product  on  the  market.  In  that  case  we  want  to 
know  only  the  real  extra  cost  of  the  by-product.  In  still  other 
cases  a  factory  owner  may  want  to  know  whether  he  had 
better  shut  down  his  factory  for  a  period,  or  run  it  until  the 
market  for  the  product  improves.  To  answer  this  question  he 
needs  an  entirely  different  set  of  figures  than  when  he  is 
deciding  whether  or  not  to  build  a  new  factory. 

Practically  every  theory  of  cost  or  theory  of  valuation  helps  to 
answer  some  particular  question,  and  we  shall  continue  to  have 
new  cost  theories  and  new  value  theories  so  long  as  new  questions 
are  coming  up  to  be  answered. — R.  S.  Hale,  Jour.  A.  S.  M.  E., 
Feb.,  1917. 

It  is  a  fundamental  mistake  not  to  check  the  burden  charged 
to  cost  through  the  machine  rates  with  the  actual  burden  during 
corresponding  periods.  Unless  this  is  done,  machine  rates, 
developed  in  an  effort  to  secure  accurate  costs,  may  be  so  inac- 
curate as  to  lose  much  of  their  potential  value.  It  is  equally  a 
mistake  to  omit  the  necessary  check  on  any  other  kind  of  burden 
methods.  If  the  percentage-on-labor  or  the  man-hour  methods 
are  used,  control  should  be  established  to  make  an  accurate 
comparison  between  the  amount  of  burden  applied  and  charged 
to  cost  and  the  amount  of  expense  burden  actually  incurred. — ■ 
Clinton  H.  Scovell. 

Many  cost  systems  which  have  fairly  good  records  of  material 
and  labor  fail  entirely  in  their  purpose  because  they  deal  so  inad- 


equately with  the  subject  of  burden.  Important  elements  of 
indirect  costs  are  thrown  together  in  a  "general  expense  "  account, 
concealing  the  leaks  and  wastes  that  reduce  efficiency  and  curtail 
profits.  Scientific  management  is  never  complete  unless  there  is 
developed  at  the  same  time  an  accounting  practice  which  shall 
adequately  reflect  for  the  management  the  net  results  of  all  indus- 
trial endeavor. — Clinton  H.  Scovell. 

Interpret  the  Figures  into  Actions.  The  day  of  guesses  is 
past.  Knowledge  of  costs  of  each  article  produced  or  handled, 
of  expenses  by  departments,  of  the  performances  of  each  sales- 
man, of  the  work  turned  out  by  each  workman  and  machine,  of 
the  stocks  on  hand,  of  the  gross  profits  and  the  net  profits  month 
by  month,  are  necessary  to  success.  The  man  who  can  interpret 
these  figures  into  actions  that  produce  profits  is  the  successful 
manager.  But,  first  of  all,  he  must  have  the  figures. — Charles 
R.  Stevenson,  General  Manager  of  the  National  Veneer  Products 
Company  Factory,  Sept.  15,  1916. 

Functions  of  the  Cost  Accountant.  In  the  past  the  principal 
function  of  a  cost  system,  besides  indicating  a  limiting  selling 
price,  has  been  to  enable  those  in  financial  control  to  criticize 
those  operating  the  factory.  These  criticisms  are  usually  from 
one  to  three  months  late,  and  are  so  general  in  their  character 
as  to  afford,  as  a  rule,  no  guide  whatever  by  which  the  superin- 
tendent can  be  governed.  Such  a  system  is  too  often  most  highly 
prized  for  its  worst  defect,  namely,  that  it  enables  those  in 
financial  authority  to  criticize  without  taking  any  responsibility 
whatever  for  showing  how  to  do  better. 

Before  we  can  expect  to  get  any  great  benefits  from  the  newer 
managerial  idea,  we  must  readjust  our  ideas  of  the  functions  of 
the  cost  accountant,  who  must  become  the  servant  of  the  operating 
executive  r»  well  as  of  the  financial  executive. 

As  long  as  the  cost  accountant  is  simply  a  critic,  he  may  be 
called  "non-productive,"  but  when  he  furnishes  the  superin- 
tendent with  prompt  information  which  enables  him  to  reduce 
costs  he  becomes  "productive."  Promptly  detailed  information 
of  what  is  being  done  each  day,  furnished  in  such  manner  as  to 
be  readily  compared  with  what  has  been  done,  and  what  can 
be  done,  is  the  best  method  of  measuring  efficiency. — H.  L. 
Gantt,  Trans.  A.  S.  M.  E.,  1914. 

The  end  and  aim  of  cost  accounting  should  be  to  know  not  how 
much  a  certain  order  cost  for  its  constituent  productive  elements, 
but  why  it  cost  what  it  did,  and  under  what  conditions  the  cost 
might  be  reduced. — F.  E.  Webner,  Eng.  Mag.,  Vol.  35,  p.  591. 

The  Chief  Cost  Accountant.  A  proper  head  to  the  depart- 
ment of  cost  keeping  must  be  as  much  an  engineer  as  an  account- 
ant, and  capable  not  merely  of  compiling  figures,  but  of  using  the 
information  when  the  facts  are  compiled;  for  the  end  of  cost 
keeping  is  cost  reduction.  This  man  must  be  so  efficient  that 
he  may  be  depended  upon  by  the  highest  official  of  the  company 
and  he  will  naturally  be  high  in  the  counsels  of  the  latter.  .  .  . 
A  man  who  fills  such  a  position  will  have  no  sinecure. — James 
Newton  Gunn,  Eng.  Mag.,  Jan.,  1901. 

The  Manager  of  the  Future.  Before  the  cost  accountant 
can  become  efficient  the  management  must  become  efficient, 
because  if  the  management  is  not  efficient  the  cost  work  will  not 
be  organized  and  functionalized  so  that  it  can  reflect  truly, 
adequately  and  completely  the  real  value  of  the  business  per- 
formance. 

The  efficient  manager  knows  a  cost  system  to  be  a  means  to  an 
end,  and  not  an  end  in  itself. 

The  systematic  manager  occupies  his  time  in  writing  history; 
the  efficient  manager  is  writing  scientific  prophecies.  He  is 
scientifically  determining  what  is  going  to  happen  the  day  after 
to-morrow.  He  is  systematic,  too,  but  his  system  is  projected 
into  the  future. 

The  manager  of  the  future  will  be  more  of  an  accountant, 
more  of  an  engineer,  no  matter  how  much  of  a  financier  or  sales- 
man he  may  be. — E.  St.  Elmo  Lewis. 


USES  OF  COST.     VARIOUS  OPINIONS  ABOUT  COST 


123 


Devising  a  Cost  System.  If  the  work  is  to  be  undertaken 
by  the  regular  office  force  the  system  must  be  one  that  they  can 
handle. 

The  cost  accounting  must  work  along  the  line  of  least  resist- 
ance and  begin  with  as  simple  a  system  as  possible.  This  is 
the  reason  for  introducing  at  first  an  estimating  system,  which 
will  soon  show  where  more  complete  methods  should  be  applied. 

There  are  conditions  that  remain  constant  from  year  to 
year,  and  when  a  cost  system  has  obtained  the  results  by  de- 
tailed methods  for  one  or  two  years  that  part  of  the  system  may 
be  dropped  and  the  results  considered  as  a  constant  quantity. 
There  is  little  merit  in  verifying  established  data,  especially  if 
the  verification  is  involved  or  expensive  and  can  be  accomplished 
approximately  by  other  means. 

Whatever  kind  of  system  is  devised  every  precaution  should 
be  taken  to  avoid  making  it  top-heavy. — Nicholson. 

If  the  original  data  of  time  and  material  are  kept  and  filed 
by  cost  symbol  or  number,  then  in  some  lines  of  business 
the  compiling,  comparison  and  analysis  need  be  done  for 
one-tenth  or  one-hundredth  of  all  the  data,  selecting  the 
pieces  whose  cost  is  desired  to  be  known;  thus  greatly  de- 
creasing the  cost  and  the  complexity  of  the  cost  system. 
For  example,  if  it  were  attempted  in  a  hardware  factory 
employing  1000  men  or  more,  and  making  10,000  different 
styles  and  sizes  of  product,  nine-tenths  of  which  are  made  on 
piece  work,  by  the  same  processes  and  machines  year  after 
year,  to  have  a  cost  system  in  which  all  the  original  data  were 
transcribed  to  piece  cost,  group  cost  and  finished  product 
cost  cards,  each  with  labor,  material  and  burden  cost  tab- 
ulated, and  in  which  a  monthly  summation  of  all  these  cards 
was  made  for  the  purpose  of  making  journal  entries  for  the 
general  books,  thus  tying  the  cost  system  to  the  bookkeeping, 
the  cost  of  the  cost  system  would  be  so  great  as  to  endanger 
the  profits  of  the  concern. 

//  is  not  imperative  to  record  the.  cost  of  each  individual  machine 
if  it  is  an  exact  duplicate  of  others  whose  cost  is  known .  It  is  suf- 
ficient that  the  cost  of  individual  parts  or  operations  be  recorded 
so  as  to  note  any  variation  of  cost  due  to  changes  in  the  cost  or 
in  the  efficiency  of  labor  or  material.  — John  Sturgess,  Eng.  Mag., 
Vol.  36,  p.  940. 

When  a  new  construction  is  in  progress  or  important  altera- 
tions are  being  made  in  an  existing  machine,  the  manager  requires 
the  most  minute  subdivisions  of  costs,  so  that  he  may  know  in 
what  sections  of  work  or  in  which  departments  he  must  seek  to 
economize.  But  at  other  times  when  the  works  are  producing 
machines  of  standard  patterns  only  or  executing  reproductions 
of  previous  orders,  such  subdivisions  are  not  so  necessary.  It  is 
then  usually  sufficient  to  ascertain  the  total  on  each  machine  or 
structure  so  as  to  insure  that  it  does  not  exceed  a  normal  amount. 
— F.  G.  Burton,  "  Engineers'  and  Shipbuilders'  Accounts." 

In  the  securing  of  costs  in  a  specific  case  it  is  necessary  to 
regard : 

a.  The  character  of  the  enterprise. 

b.  The  value  of  the  information  when  secured. 

c.  What  use  should  be  made  of  the  facts. 

d.  The  provision  in  the  organization  of  having  the  facts  used 
as  intended. 

e.  Whether  or  not  those  for  whom  the  facts  are  intended  are 
competent  to  use  them. 

/.  Whether  through  proper  inspection  there  is  assurance  that 
the  facts  have  been  used. 

g.  In  what  degree  of  refinement  should  the  costs  be  presented. 
— J.  Newton  Gunn,  in  Humphrey's  "  Business  Engineering," 
p.  500. 

Unintelligence  was  and  is  still  exhibited: 


By  the  lack  of  appreciation  of  the  vital  necessity  of  having  any 
facts  used  in  the  operating  department  capable  of  proof  in  the 
final  accounts  of  the  corporation  or  firm. — Ibid.,  p.  499. 

If  by  the  words  "  final  accounts  "  is  meant  the  general 
books  of  the  concern,  this  is  an  entirely  unnecessary  "  tying 
of  the  costs  to  the  general  books."  The  sentence  should  end 
with  the  words  "  capable  of  proof."  If  the  "  operating 
department  "  makes  a  boiler,  for  example,  all  the  facts  con- 
cerning its  cost  may  be  proved  by  the  job  tickets  and  stores 
issue  cards,  not  by  the  "  final  accounts." 

Many  people  believe  that  costs  may  be  usefully  manipulated 
and  twisted  and  arranged  so  that  they  cease  to  represent  what 
actually  happened  but  what  in  the  opinion  of  the  manipulator 
ought  to  have  happened.  A  simple  illustration  of  this  is  the 
argument,  not  infrequently  met  with,  that  where  machine  rates 
are  in  use  a  job  done  on  a  large,  heavy  planer  that  could  have 
been  done  on  a  lighter  machine  should  not  be  "  penalized  " 
by  bearing  the  burden  incident  on  a  large  machine.  It  would  be 
just  as  proper  to  insist  that  where  premium  work  is  in  use  a 
piece  of  work  should  always  be  costed  at  its  lowest  rate  of  pro- 
duction.— A.  Hamilton  Church,  Eng.  Mag.,  Vol.  38,  p.  21. 

The  "  argument  "  that  the  job  should  not  be  "  penalized  " 
by  the  burden  of  the  large  machine  is  a  perfectly  sound  one  if 
the  costs  are  to  be  used  as  a  basis  of  inventory  values  or  of 
selling  prices.  If  a  job  for  a  light  planer  comes  into  a  shop 
and  all  the  light  planers  are  busy  while  a  heavy  planer  is 
idle,  "  eating  its  head  off  "  with  unearned  burden,  it  is  advis- 
able to  do  the  job  on  the  heavy  planer,  but  to  charge  only 
the  burden  of  a  light  planer  which  would  ordinarily  be  used 
for  the  job.  Why  should  a  job  be  "  penalized  "  just  because 
the  light  planers  all  happened  to  be  busy  when  it  came  into 
the  shop? 

The  following  is  an  example  of  incorrect  reasoning  which 
sometimes  follows  a  strict  adherence  to  the  machine-hour 
system  of  distributing  burden:  An  owner  of  a  machine 
shop  who  had  a  tabulated  hourly  burden  charge  for  each 
machine,  varying  with  the  size  of  the  machine,  the  ci  >^t  of 
running  it  and  the  number  of  hours  that  the  machine  was 
expected  to  run  in  a  year,  noticed  that  a  small  piece  was 
being  turned  in  a  very  large  lathe.  He  told  the  foreman  that 
he  should  not  use  the  lathe  for  that  piece  because  the  burden 
charge  on  it  was  too  heavy,  and  it  would  make  the  piece  cost 
too  much.  The  foreman  replied  that  all  the  other  lathes 
were  busy  and  that  there  was  no  heavy  work  on  hand  for 
the  large  tool,  and  he  thought  he  would  make  the  big  lathe 
"  do  something  for  its  keep."  The  foreman  was  right,  and, 
moreover,  the  burden  that  should  be  assessed  against  that 
piece  in  making  up  its  cost,  if  the  cost  was  to  be  used  as  a 
basis  for  estimating  on  future  orders  for  similar  pieces,  is 
not  the  machine-hour  rate  of  the  big  lathe,  but  only  that  of  a 
small  one,  on  which  the  work  would  ordinarily  be  done. 

Systems  of  factory  accounting  must  show  not  only  the  cost 
of  the  product  but  also  indicate  the  working  conditions  and 
efficiency  of  all  departments.  The  manager  must  have  some 
means  by  which  he  can  check  large  unnecessary  expenditures 
or  heavy  losses.  He  should  be  able  to  detect  increases  in  cost 
above  normal  or  any  unnecessary  investments  in  stock  for 
manufacture. — C.  U.  Carpenter,  Eng.  Mag.,  XXIV,  39. 

To  make  savings  of  money,  service  and  time,  the  cooperative 
[accounting]   adviser  to  an  executive    must   be  able:     (a)   To 


124 


BOOKKEEPING  AND   COST  ACCOUNTING 


distinguish  clearly  between  records  which  are  vital  to  the  future 
policies  of  a  business  and  those  which  are  merely  historical. 

The  past  in  industry  as  a  determinant  for  policies  is  of  value 
only  as  it  is  vitally  concerned  with  the  future. 

6.  To  omit  many  [accounting]  refinements  that  cost  much 
money  and  lead  to  a  "false  and  delusive  accuracy  ";  to  avoid  so 
far  as  possible  doing  work  that  "costs  more  than  it  is  worth." — 
Dr.  Hollis  Godfrey,  in  a  paper  on  "  Application  of  Engineering 
Methods  to  the  Problems  of  the  Executive,  Director,  or  Trustee." 
In  the  original  the  word  "engineering"  is  used  where  "account- 
ing" appears  in  the  quotation. 

"  Tying  in "  the  Cost  Records  to  the  General  Accounts. 
When  the  cost  records  are  "tied  in"  with  the  general  accounting, 
the  management  has  complete  control  not  only  over  the  operating 
expenses  of  the  factory,  but  over  the  inventories  of  raw  material, 
work  in  process,  and  finished  product. 

Cost  calculations  are  sometimes  made  entirely  detached  from 
the  general  bookkeeping,  but  it  is  very  rarely  that  such  records 
have  anything  like  their  full  value,  and  their  use  is  always 
attended  by  the  very  considerable  risk  that  they  cannot  be 
proved  by  the  showing  on  the  financial  books  at  the  end  of 
the  year  or  other  closing  period. — Clinton  H.  Scovell. 

The  original  entries  of  factory  costs  of  salable  products  or 
of  betterments  are  made  on  job  tickets  and  stores  issue 
tickets.  Those  of  auxiliary  department  costs  are  made  on  the 
pay  rolls  of  the  several  departments  for  labor  and  on  stores 
issue  tickets  or  store  books  for  indirect  material.  The  burden 
charges  to  cost  of  salable  products  or  betterments  are  made 
on  job  tickets,  on  stores  issue  tickets  (for  material  burden) 
on  piece  cost  cards,  or  on  cost  summaries,  according  to  the 
system  of  burden  distribution  that  has  been  adopted. 

The  costs  are  "  tied  to  the  general  books  "  through  the 
journal  entries  on  the  factory  books:  Sundries  to  Labor, 
Sundries  to  Cash,  Sundries  to  Stores,  Sundries  to  Burden, 
the  Sundries  being  Work  in  Process,  Stores,  Betterments, 
Burden.  The  cost  accounts  are  balanced  or  "  proved  "  by 
the  total  credits  to  labor  equalling  the  total  of  the  pay  rolls, 
by  the  total  credits  to  Stores  equalling  the  total  of  the  stores 
issue  tickets,  but  this  is  by  no  means  a  "  proof  "  of  the 
accuracy  of  the  costs.  Their  accuracy  depends  entirely  upon 
the  accuracy  of  the  original  entries  on  the  job  tickets  and 
stores  issue  tickets,  and  upon  the  correctness  of  the  method 
or  theory  as  well  as  the  clerical  accuracy  of  the  distribution 
of  burden.  Any  error  in  these  will  be  carried  forward  into 
the  general  books,  where  it  will  remain  undiscovered.  The 
costs  may  be  tied  to  the  books  but  cannot  be  proved  by  them. 

"  Complete  control  over  the  operating  expenses  of  the 
factory  "  cannot  be  obtained  by  any  system  of  accounting. 
That  is  a  function  of  the  management  which  is  independent 
of  the  accounting  system. 

With  the  cost  books  once  established  the  best  modern  method 
is  to  incorporate  their  record  in  total  in  the  general  financial 
books.  The  cost  books  must  be  interlocked  with  the  financial 
books. 

The  cost  books  contain  the  data  showing  the  analysis  of  the 
elements  of  cost,  all  of  which  should  be  controlled  by  the  finan- 
cial books  so  as  to  permit  of  a  verification  of  the  mathematical 
accuracy  of  the  transactions  on  the  cost  records. — Nicholson. 

It  is  desirable  that  cost  accounts  should  be  based  on  an  elastic 
system,  and  that  while  they  are  built  up  on  the  same  founda- 
tion and,  in  general,  must  agree  with  the  financial  books  of  the 
concern,  they  should  not  be  interlocked  with  them. — F.  G.  Bur- 


ton, "Engineers'  and  Shipbuilders'  Accounts" — The  Account- 
ant's Library,  Vol.  XIV. 

WAGE   SYSTEMS 

The  Bonus  Plan.  Explained  in  detail  by  Mr.  Gantt  in  his 
valuable  paper  read  before  the  A.  S.  M.  E.  in  December,  1901. 
Distinctly  a  system  of  task  work  combined  with  the  use  of  instruc- 
tion cards  for  the  workmen  and  a  bonus  for  accomplishing  the 
task  within  the  time  set  for  it. 

This  bonus  system  of  pay  has  always  appealed  to  me  as  the 
most  easily  understood,  the  easiest  to  introduce  with  little  oppo- 
sition, and  the  most  effective  of  all  systems  yet  produced.  It  is 
adaptable  in  some  forms  to  almost  any  other  system  of  pay  that 
may  be  already  in  existence  in  the  shop.  It  is  the  easiest  to 
introduce  in  case  the  men  are  working  upon  the  day-work  basis. 
Nor  is  it  difficult  to  persuade  the  workmen  to  abandon  piece  work 
for  it  in  case  the  reward  is  made  sufficient.  I  have  been  intro- 
ducing it  into  works  under  my  control  with  marked  success.  — 
C.  U.  Carpenter. 

A  Benefactor  to  the  Race.  Every  cheapening  of  production 
brings  a  more  than  proportionate  increase  of  consumption. 
There  is  no  greater  benefactor  to  the  whole  race,  from  a  material 
point  of  view,  than  the  man  who,  by  diligence  or  inventiveness, 
makes  one  hour  of  labor  suffice  for  the  work  which  formerly  took 
two.  His  blessing  is  like  in  kind  and  great  in  proportion  to  his 
who  makes  two  blades  of  grass  grow  where  one  grew  before. — 
Editorial  in  Eng.  Mag.,  June,  1900. 

The  man  who  causes  one  man  to  cut  the  grass  that  two  or 
three  men  cut  before  is  a  public  benefactor. — W.  Kent,  1914. 

The  Cincinnati  Milling  Machine  Co.,  in  a  pamphlet 
describing  its  factory,  explains  its  wage  system  as  follows: 

Wages  are  paid  weekly,  (a)  An  hourly  rate  is  established  for 
each  employee,  according  to  his  skill  and  experience. 

(6)  Additional  Compensation.  We  aim  to  provide  detailed 
instruction  sheets  for  all  operations,  which  will  show  in  detail  the 
method  of  handling  the  job  to  best  advantage  and  with  the  least 
labor.  On  this  sheet  is  also  shown  the  normal  or  standard  time 
for  the  performance  of  the  operation.  If  this  work  is  done  in 
this  time,  the  workman  is  paid  a  bonus,  which  approximates  a 
one-third  increase  in  wages.  If  the  work  is  done  in  less  time  than 
the  standard  time  shown  on  the  instructicn  sleet,  the  employee 
receives  the  bonus  as  above  and  a  pren  ium  in  ;.dditicn  to  the 
bonus.  If  it  takes  an  employee  longer  than  the  standard  time 
to  do  the  work,  he  has  an  opportunity  to  earn  a  premium  for  all 
the  time  that  he  saves  inside  of  standard  time  plus  40  per  cent. 
This  premium  time  is  also  clearly  stated  on  the  instruction  sheet. 
The  above  standard  time  is  in  all  cases  reasonably  and  fairly  set, 
and  the  average  man  has  no  difficulty  in  earning  the  bonus. 
The  time  is  set  with  great  care  and  when  it  is  once  set,  it  is  never 
changed  until  the  job  itself  is  changed  or  some  change  is  made 
in  the  method  of  performing  the  operation,  or  different  tools  or 
jigs  are  employed. 

The  Flow  of  Values.  The  two  diagrams,  Fig.  6,  page  125, 
show  a  method  of  illustrating  the  "  flow  of  values."  The  same 
final  results  are  accomplished  by  each.  The  total  expendi- 
tures for  labor,  material  and  burden  are  all  accounted  for, 
as  shown  in  the  block  marked  "  Results."  The  difference 
between  the  tw7o  diagrams  is  that  in  the  first  the  total  of  labor, 
material  and  burden  flows  in  three  large  streams  into  Work 
in  Process,  while  in  the  second  it  flows  through  a  great  number 
of  small  streams,  through  departments,  classes,  and  opera- 
tions, which  later  are  concentrated  into  a  few  large  streams 
that  lead  to  the  total  result.  We  may  put  flow  meters  on  all 
these  small  streams,  and  their  total  may  equal  the  total 


USES  OF  COST.     VARIOUS  OPINIONS  ABOUT  COSTS 


125 


Cash 


Labor 

Direct         Indirect 


Betterment 
(Chg.  Co.) 


Cr.  Company 


Stores 


^5L 


Material 

Direct  Indirect 


Work  in  Process 


Warehouse 


Gen.  Charges 


Burden 


RESULTS 


Goods  Shipped 
(Chg.  Co.) 


Balances 

In  Warehouse 

Work  in  Process 

Stores 

Undistributed  Burden 

Total  Expenditure  =  \°"tc0. 


Labor  Material 


^    77 


Depts.    A       B       C       D 


Indirect 
Labor 


Classes  of  * 
Product      ^^   vy' 

1      2      3 

Operation 

Pieces 

Groups 

Product  by 

Catalog  Nos. 


Indirect 

Material 
I   I 


Co's  Gen 
Charges 


Burden 


Different  Methods  of 
Distributing  Burden 
a    Proportional  to  Cost  of  Direct  Labor 
b  "  "      "      "       **    Material 

C  ■•  *'   Prime  Cost 

d    By  Departments 
e    By  Departments  and  Classes 
f    By  Classes  of  Product 

By  Machine  Hour  Rates  applied  to 
g  Operations 
h  Pieces 
i    Groups 
j    Products 


Undistributed 
Burden 


Total  Prime  Cost  +  Total  Burden  =  Factory  Cost 
of  Work  in  Process,  distributed  as  in  "RESULTS" 


"Tying  the  Cost  System  to  the  General  Accounts" 


Fig.  6. — Diagrams  Illustrating  the   Flow  of  Values. 


Co.  Cr.  Bal.  60,000 

'"-"Ills 37,400 

**~*  ^  An 

Dr.Bal.  20,000      \ 
20,000  A 


Co.  Cr.  97,400 
Co.  Dr.  44,000^ 


Fig.  7. — The  Flow  of  Values.     Factory  Ledger.     (See  page  41.) 


126 


BOOKKEEPING  AND   COST  ACCOUNTING 


of  the  meters  on  the  pipes  leading  from  Labor,  Material  and 
Burden,  which  agrees  with  the  meter  measuring  the  Results. 
Thus,  we  have  "  tied  the  cost  system  to  the  general  accounts," 
and  we  have  "  checked  the  burden  charged  through  the 
machine  rates  with  the  actual  burden  during  corresponding 
periods."  It  is  a  great  satisfaction  to  the  bookkeeper  to  have 
done  this.  It  proves  that  his  books  are  in  balance,  that  he  is 
a  good  arithmetician,  that  every  expenditure  has  been 
entered  and  charged  to  some  account,  but  it  does  not  prove 
the  accuracy  of  the  cost  accounts.  Material  and  labor  may 
have  been  charged  to  one  article  that  belonged  to  another. 
The  burden  may  have  been  distributed  according  to  a  wrong 
system  and  one  product  greatly  overcharged  and  another  as 


greatly  undercharged.  The  idea  that  the  cost  accounts  are 
"  proved  "  to  be  correct  by  tying  them  to  the  general  accounts 
is  a  delusion. 

Diagrams  of  "  flow  of  values  "  have  sometimes  been  made 
with  figures  of  the  values  inserted.  They  may  be  of  some 
use  in  explaining  to  students  the  theory  of  accounts,  but 
they  are  of  no  practical  use  to  accountants.  Fig.  7  shows 
such  a  diagram  made  from  the  figures  given  in  the  Factory 
Ledger  on  page  41,  and  Fig.  8  one  made  from  the  General 
Ledger,  page  40.  On  comparing  the  diagrams  with  the 
column  ledgers  it  will  be  seen  that  the  ledgers  give  all  the 
information  that  the  diagrams  do,  and  more,  and  they  also 
give  it  in  a  more  simple  and  easily  understood  form. 


Cap.  Stock 

100.000 

Bonds  40,000 


Surplus 
Cr.  10,000 
••     11.800 
••       5,000 
Dr 


Dividend 
8,000 


Fct'y  R.E.  &  E. 
Bal.  50.000 
2,000 


Bal. 


Cash 

25,000 

6,000 

12,000 

40,000 


Res.  for  Dep. 
Cr.  15.000 
,!»Dr.     1,000 


Int.Chgd.Fact'y 

Cr.  5,000 
*-    Dr.  5,500  -» 


Txs.  &  Ins. 
Dr.Bal.  2,000 
*  1,000 


Dis.  &  Int. 
Dr.Bal.  1,000 
►    500 


T- 


Profit  &  Loss 

Cr.  5,000 

Cr.  5,500 

-*Dr.  1,000 

*  1,200 

500  ■*■■ 


Fact.y  Oper'g 

Bal.  60,000 

*■         600 

500 
10.000 
10,000 

-» 15.000 

300  *■ 
1,000 


Adm.  & 
Sel.  Exp. 
Dr.Bal.  2,000 
,-•*  10,000 

I 
_l 


Bills  Pay 
Cr.  5,000 
— >  3,000 


( 
I 
I 
I 

I 

-+- 

I 


Bills  Rec. 


Cost  of  Sales 
» — >  4,000 

*  11,000 

40,000 


Bal.  15,000 
-*    10,000 


Accts.  Pay 
Cr.  20,000 
->-22,000 


4 


Accts. Rec. 


Fig.  8. — The  Flow  of  Values.     General  Ledger.     (See  page  40.) 


Predetermined  Costs — Standard  Costs.  There  are  two  meth- 
ods of  ascertaining  cost.  1.  Ascertain  them  after  the  work  is 
completed.  2.  Ascertain  them  before  the  work  is  undertaken. 
The  first  is  absolutely  incorrect,  mixing  up  with  costs  incidents 
that  have  no  connection  with  them.  Real  costs  are  divided  into 
(1)  standard  costs,  (2)  avoidable  loss. 

There  was  a  railroad  shop  in  which  charges  were  distributed 
with  such  painful  care  that  the  shop  sweepers  subdivided  their 
time  to  the  various  locomotives  around  which  they  loitered.  But 
locomotives,  as  well  as  men,  can  loiter,  and  one  of  them  stood 
in  this  shop  three  months,  waiting  for  a  steel  deck  plate.  Being 
familiar  with  its  number  the  workers  charged  all  the  time  they 
could  not  account  for  to  this  locomotive,  so  that  at  the  end  of 
three  months  the  total  amounted  to  more  than  $500.  In  prin- 
ciple there  is  no  difference  between  charging  an  hour  of  wholly 
wasted  time  to  a  locomotive  and  charging  it  with  two  hours  of 
time  when  one  hour  should  have  accomplished  the  work.  The 
moment  specific  wastes  of  any  kind  are  charged  to  a  definite 
order  instead  of  being  charged  to  some  inefficiency  account  real 
costs  are  vitiated. 

Because  costs  are  not  standardized  the  variations  due  to 
inefficiency  are  in  the  records  either  increased  or  lessened  by  the 
much  larger  variations  due  to  change  of  conditions.  A  job  done 
one  month  under  100  per  cent  conditions  but  with  60  per  cent 
labor  efficiency  may  equal  in  (recorded)  cost  the  same  job  done 
in  another  month  under  00  per  cent  conditions  but  100  per  cent 
labor  efficiency. 

In  one  month  surfacing  a  slide  valve  cost  $37.00  and  in  another 


month  S3. 65.  The  object  of  cost  accounting  is  to  record  ac- 
curately present  (not  past)  facts,  and  to  facilitate  future  improve- 
ments. 

"A  day's  work,"  "a  pound  of  material,"  "the  performance  of  a 
machine,"  should  be  predetermined  in  all  cases.  The  difference 
between  standard  costs  and  actual  costs  is  the  loss  due  to  inef- 
ficiency. 

Allotted  costs  =  standard  cost  +  current  wastes.  Current 
wastes  are  predetermined  by  assuming  that  they  will  be 
relatively  of  the  same  percentage  as  for  an  immediately 
preceding  period. — Harrington  Emerson,  Eng.  Mag.,  Vol.  36, 
d.  336. 

Defects  and  Troubles  of  Bad  Cost  Systems.  The  cost 
keeping  is  usually  under  the  jurisdiction  of  the  bookkeeping 
department  who  are  apt  to  make  too  much  of  a  bookkeeping 
proposition  of  it. 

A  manufacturing  concern  installed  two  different  systems 
within  two  years,  and  at  enormous  expense,  and  for  a  long  time 
they  had  costs  coming  on  through  three  different  systems,  and 
it  was  more  than  three  years  before  they  got  anything  satisfac- 
tory, and  then  the  costs  were  not  as  satisfactory  for  com- 
mercial purposes  as  the  ones  they  obtained  by  their  original 
system. 

A  system  should  be  adapted  to  the  particular  needs  of  the 
business.— W.  M.  S.  Miller,  Eng.  Mag.,  Vol.  36,  p.  832. 

The  systems  which  failed  were:  Group  Cost,  Operation  Cost, 
Piece  Cost.     They  involved  an  immense  number  of  cards  and 


USES  OF  COST.    VARIOUS   OPINIONS  ABOUT  COSTS 


127 


entries  and  a  delay  of  from  a  few  days  to  several  weeks  before 
any  tangible  total  could  be  arrived  at,  and  that  was  not  trust- 
worthy.— John  Sturgess,  Eng.  Mag.,  Vol.  3C,  p.  1)40. 

Axioms  Concerning  Manufacturing  Costs.  By  Henry  R. 
Towne,  Trans.  Am.  Soc.  Mech.  Engrs.,  1912. 

Axion  1.  Every  cost  (of  a  manufactured  article)  includes  three 
fundamental  factors,  labor,  material,  expenses. 

Axiom  2.  The  expense  factor  should  be  split  into  two  parts; 
manufacturing,  commercial. 

Axiom  3.  A  manufacturing  cost  has  three  phases:  prime  cost, 
shop  cost,  actual  cost. 

Axiom  4.  Accurate  cost  information  is  vital  to  good  manage- 
ment. 

Axiom  5.  Accurate  costs  imply  the  correct  classification  of 
every  expenditure. 

Axiom  6.  Every  production  expenditure  should  be  charged 
directly  to  its  proper  account. 

Axiom  7.  All  non-productive  expenditures  should  be  properly 
grouped  for  final  distribution. 

Axiom  8.  The  normal  basis  for  distributing  manufacturing 
expense  is  productive  labor. 

Axiom  9.  The  normal  basis  for  distributing  commercial  expense 
is  shop  cost. 

Axiom  10.  An  accounting  system  should  show  results  both  by 
departments  and  by  totals. 

Axiom  11.  A  contract  product  may  require  a  more  complex 
accounting  system  than  a  stock  product  for  the  accurate  deter- 
mination of  costs. 

Axiom  12.  An  accounting  system  should  be  embodied  in  a 
code  of  instructions  for  the  guidance  of  those  responsible  for  its 
operation. 

Axiom  13.  Symbols  are  better  than  titles  for  recording  charges 
in  an  extensive  accounting  system. 

Axiom  14.  Extraordinary  gains  or  losses,  in  order  not  to  dis- 
tort the  statistical  value  of  the  annual  profit  and  loss  record, 
should  be  covered  into  the  surplus  account  between  the  closing 
of  the  books  for  the  old  year  and  the  opening  of  the  books  for  the 
new  year. 

Axiom  15.  Interest  on  borrowed  capital  should  not  be  treated 
as  an  operating  expense,  but  should  be  charged  direct  to  the 
profit  and  loss  account  of  the  year. 

Axiom  16.  Final  profits  properly  signify  the  amount  earned 
on  the  capital  invested.  If  interest  on  capital  is  deducted  this 
fact  should  be  stated,  and  interest  should  be  computed  on  the 
total  capital  employed. 

Axiom  17.  Terms  used  to  designate  profits  should  indicate 
clearly  the  stage  of  profits  to  which  they  refer,  and  should  be 
mutually  understood. 

Axiom  18.  Speculative  profits  and  losses  should  be  segregated 
from  those  due  to  the  normal  operations  of  a  business. 

Axiom  19.  A  reduction  in  cost  implies  a  corresponding  reduc- 
tion in  inventory. 

Axiom  20.  Expenditures  in  one  year  which  cover  the  require- 
ments of  several  years  should  be  distributed  over  the  years  to 
which  they  fairly  apply. 

Axiom  31.  An  annual  inventory  of  all  property  is  indispen- 
sable to  accurate  knowledge  and  to  good  management. 

Axiom  22.  Valuation  of  fixed  property  should  be  subject  to 
annual  review  and  to  fair  depreciation. 

Axiom  23.  An  accounting  system  should  present  facts,  without 
bias  in  any  direction. 

Axioms  are  statements  of  what  are  supposed  to  be  self- 
evident  facts.  Some  of  Mr.  Towne's  so-called  axioms  are 
by  no  means  self-evident,  and  some  of  them  are  open  to  serious 
objection,  as  below: 

No.  2.  Each  department  has  its  own  expense  factor,  and 
that  of  the  manufacturing  department  has  nothing  to  do 
with  that  of  the  commercial  department. 


No.  3.  A  manufacturing  cost  has  three  elements,  direct 
material,  direct  labor,  and  expense.  The  sum  of  the  first  two 
is  often  called  "  prime  cost,"  and  the  sum  of  the  three  is  shop 
cost,  which  is  the  same  as  manufacturing  cost  or  factory 
cost.     The  term  actual  cost  has  no  well-defined  significance. 

No.  7.  The  modern  term  for  "  non-productive  "  is 
"  indirect." 

No.  8.  In  the  best  systems  of  cost-accounting  the  basis 
for  distributing  manufacturing  expenses  is  the  normal 
machine-hour  rate.  The  cost-of-productive-labor  basis  is 
the  most  faulty. 

No.  9.  Commercial  expenses  have  no  relation  whatever  to 
shop  costs.  A  shop  may  make  two  classes  of  products,  the 
shop  cost  of  each  in  one  month  being  $1000.  It  may  cost 
for  selling  expenses  $100  for  the  first  lot  and  $1000  for  the 
second. 

No.  15.  Interest  on  borrowed  capital  is  a  financial  expense 
which  has  nothing  to  do  with  cost  accounting,  but  interest 
on  the  whole  investment  of  the  factory,  whether  cash  obtained 
by  the  sale  of  stock  or  borrowed  money,  is  a  manufacturing 
cost.  It  should  be  charged  against  the  factory  and  credited 
to  Interest  Earned,  or  some  such  account,  in  the  Company's 
general  or  private  ledger. 

No.  16.  Final  profits  include  Interest  Earned,  Profit  of 
the  Selling  Department,  and  any  other  profits,  less  all  the 
losses.  They  are  all  finally  closed  into  Profit  and  Loss,  the 
balance  of  which,  for  the  year,  shows  the  final  profits,  or  losses 
as  the  case  may  be. 

No.  21.  An  annual  inventory  is  not  at  all  necessary  if  a 
continuous  inventory  is  properly  kept,  the  cards  being  fre- 
quently checked  as  the  quantities  or  amounts  of  the  several 
items  inventoried  are  at  their  lowest  stages. 

The  above  axioms  together  with  these  comments  were 
submitted  to  a  professional  accountant  for  his  opinion  on 
them,  and  he  replied  as  follows: 

"  I  would  avoid  axioms  as  a  plague.  The  thing  for  the 
cost  accountant  is  to  use  his  own  common  sense  at  all  times, 
and  STUDY  HIS  OWN  PROBLEMS  rather  than  those  of 
others.  For  a  clear  outline  of  the  whole  field  let  him  go  to 
some  one  book  such  as  the  present,  for  genera'  principles 
only." 

Subdivisions  of  Costs.  F.  A.  Parkhurst  in  his  book  on 
"  The  Predetermination  of  True  Costs  "  subdivides  costs 
as  below: 

Direct  Labor      1  „.      ,  „ 
_..      ,  ,  r  ,    .  ,  >  Direct  Costs 
Direct  Material  > 


Indirect  Costs 


True  Costs 


Administration 
Financial 
Sales 
Operating 

A  better  schedule  of  division  is  as  follows: 

Direct  Labor 

Direct  Material    [  Factory  Cost 

Factory  Expense  J 

Factory  Cost  !_,._         ... 

Commercial  Expense  /  TotaI  ExPenditure 


128 


BOOKKEEPING  AND   COST  ACCOUNTING 


Mr.  Parkhurst  says  that  he  "  considers  the  word  cost  to 
include  all  items  both  direct  and  indirect,  including  the 
minimum  profit  factor."  This  is  an  unusual  definition  of 
cost.  The  cost  of  a  thing  to  us  is  what  we  have  to  pay  to 
get  it.  It  does  not  include  either  our  selling  expense  nor 
any  part  of  our  profit  that  may  be  made  when  we  sell  it. 

Costs  of  Organizations;  of  Patents  and  Patent  Litiga- 
tion ;  of  Experiments.  There  are  often  some  costs  incurred 
in  connection  with  a  business  that  are  neither  factory  operat- 
ing costs  nor  commercial  or  selling  costs,  such,  for  example,  as 
the  legal  and  other  expenses  of  organizing  a  corporation, 
expenses  connected  with  the  ownership  of  patents,  and  the 
cost  of  experiments  which  may  or  may  not  prove  successful. 
Accounts  for  these  expenses  should  be  opened  in  the  general 
books,  and  whether  or  not  any  part  of  them  should  be  charged 
to  factory  costs  of  production  is  a  matter  for  the  management 
to  determine  as  is  also  the  question  whether  they  should  be 
entirely  written  off  at  the  end  of  the  year,  by  charging  them 
to  Profit  and  Loss,  or  carried  in  the  books  as  assets,  a  portion 
of  them  being  written  off  each  year. 

The  Westinghouse  Electric  and  Manufacturing  Co.  in 
1917  reported  as  part  of  its  assets  Patents,  Charters  and 
Franchises,  $4,285,206.51,  while  the  General  Electric  Co. 
carries  on  its  books  Patents,  Franchises,  and  Good  Will  at  a 
total  valuation  of  $1.00,  writing  off  each  year  the  total 
expenditure  upon  them. 

Interest  on  Factory  Investment  Should  be  Charged  to  Cost 

Inflated  Inventories.*  The  most  serious  objection  to  reckoning 
interest  into  costs,  in  the  opinion  of  some  accountants,  is  that 
to  do  so  "inflates"  the  value  of  an  inventory.  The  debate  arises 
over  the  word  inflate,  for  there  can  be  no  doubt  that,  so  far  as 
a  calculation  of  interest  on  investment  increases  cost,  it  logically 
raises  the  price  at  which  manufactured  goods  are  carried  in 
an  inventory.  To  the  present  writer  this  seems  no  objection 
at  all.  Seasoned  lumber  is  worth  more  than  green  lumber. 
Paper,  wines  and  leaf  tobacco  are  more  valuable  when  properly 
"aged."  The  cost  of  this  aging  process  is  almost  exclusively  a 
capital  cost.  The  cost  of  carrying  is  an  entirely  appropriate  part 
of  manufacturing  costs  and  should  be  recognized  in  pricing  the 
inventory  of  finished  goods. 

The  capital  cost  of  converting  rags  into  paper  is  just  as  inev- 
itably an  addition  to  its  cost,  and  just  as  fair  an  addition  to 
its  inventory  price  as  the  cost  of  seasoning  or  loft-drying  the  paper. 
The  capital  cost  of  converting  seasoned  lumber  into  furniture  is 
just  as  fair  an  addition  to  its  inventory  price  as  the  cost  of  sea- 
soning it  beforehand.  Frequently  a  liberal  use  of  capital  dimin- 
ishes other  costs,  and  the  too  meager  use  of  capital  increases  other 
costs.  Interest  on  investment  is  the  conventional  and  logical 
way  of  expressing  capital  cost.  Why  isn't  one  kind  of  cost  as 
good  an  addition  to  value  as  another?  There  is,  therefore,  no 
reason  why  an  inventory  should  not  be  carried  at  all  its  cost, 
including  so  much  thereof  as  may  be  due  to  interest  on  the 
investment  employed. 

The  more  carefully  one  considers  the  varied  uses  of  accurate 
costs  the  more  certainly  does  he  arrive  at  the  conclusion  that  interest 
on  investment  should  be  reckoned  as  a  factor. 

The  Rate  of  Interest.  The  rate  of  interest  which  should  be 
charged  to  cost  depends  upon  the  income  which  the  capital 
might  be  expected  to  earn  if  invested  in  high-grade  securities 
where  no  manufacturing  or  trading  risks  are  taken.  .  .  .  The 

*  From  Clinton  H.  Scovell's  "  Cost  Accounting  and  Burden  Appli- 
cation." 


Harvard  Bureau  of  Business  Research  recommends  the  use  of 
the  ordinary  interest  rate  on  reasonably  secured  long-time 
investment  in  the  locality  in  which  the  business  is  situated. 

Interest  on  investment  in  a  plant  is  very  rarely  included  in 
the  cost  of  manufacture,  but  should  be  in  all  cases. — J.  L. 
Nicholson,  "Factory  Organization  and  Costs,"  p.  33. 

Two  factories,  A  and  B,  are  making  machine  screws. 
A  has  a  small  capital,  uses  low-priced  screw-cutting  lathes, 
purchases  raw  material  in  small  lots  as  needed,  carrying  only 
a  small  stock.  A's  yearly  interest  on  the  capital  invested 
is  only  $1000.  B  has  ample  capital,  uses  modern  turret 
lathes  and  a  few  automatic  screw  machines,  purchases  material 
in  large  lots  and  carries  large  stocks  in  order  to  buy  at  the 
lowest  prices.  The  annual  product  of  B  is  the  same  as  that  of 
A,  but  it  is  made  at  a  much  lower  labor  cost,  and  at  a  some- 
what lower  cost  for  material.  The  interest  on  the  capital 
invested,  however,  is  $4000  per  year,  and  this  must  be 
charged  as  part  of  the  burden  cost  of  the  screws  made,  in 
order  to  arrive  at  their  warehouse,  or  inventory,  value. 

Mr.  Nicholson,  in  Journal  of  Accountancy,  Vol.  15,  p.  330, 
says:  "  The  writer  firmly  believes  in  the  theory  that  interest 
on  capital  invested  shall  be  charged  to  the  proper  expense 
accounts  before  ascertaining  the  actual  profit  from  manu- 
facturing or  trading."  He  quotes  Wm.  Morse  Cole  as  fol- 
lows: "  Since  one  of  the  purposes  of  accounting  is  to  show 
whether  the  return  is  adequate,  the  interest  would  seem 
necessarily  to  be  involved  somewhere  in  the  accounting." 
F.  E.  Webner,  in  his  "  Factory  Costs,"  says:  "  The  inter- 
est on  an  investment  in  plant  and  equipment,  or  rent  paid 
for  the  use  of  a  factory,  would  seem  to  be  almost  as  direct 
an  incident  of  cost  as  labor,  material,  power  or  incoming 
freight." 

Problems  on  the  Charging  of  Interest.  A  blast  furnace 
in  Northern  Ohio  at  the  close  of  the  navigation  season  on  the 
lakes  has  a  million  dollars  invested  in  a  pile  of  ore  sufficient 
to  run  the  furnace  during  the  next  five  months.  It  has  half 
a  million  dollars  invested  in  a  storage  plant  and  in  the  hoist- 
ing and  conveying  machinery  required  to  transfer  the  ore 
from  the  piles  to  the  bins  at  the  furnace.  The  transporta- 
tion company  that  brings  the  ore  from  Lake  Superior  has 
its  vessels  lying  idle  while  the  lakes  are  frozen.  A  furnace 
in  Alabama  has  its  ore  delivered  directly  from  cars  to  the 
ore  bins,  and  never  has  more  than  two  weeks'  supply  of  ore 
on  hand.  The  northern  furnace  is  handicapped,  as  compared 
with  the  southern  furnace,  by  having  to  charge  against  the 
cost  of  its  ore  the  interest  on  the  capital  invested  in  the  stor- 
age piles  and  in  the  handling  machinery;  and  the  transporta- 
tion company  has  to  charge  in  its  cost  of  freighting  interest 
on  the  cost  of  its  vessels  during  the  whole  year  although 
they  are  idle  for  five  months.  In  this  case  the  cost  of  idle- 
ness is  a  legitimate  charge  against  the  cost  of  production. 

A  southern  warehouseman  at  the  beginning  of  the  cotton 
picking  season  has  a  million  dollars  invested  in  mortgage 
bonds  which  pay  6  per  cent  interest;  he  also  owns  an  empty 
warehouse  and  an  idle  baling  plant,  costing  $200,000  but  at 
present  earning  nothing.  He  sells  his  bonds  at  par  and 
buys  a  million  dollars'  worth  of  cotton  which  he  bales  and 
stores.     Each  month  that  he  holds  the  cotton,  it  is  costing 


USES  OF  COST.    VARIOUS  OPINIONS  ABOUT  COSTS 


129 


him  $5000,  the  interest  on  his  bond  investment,  which  he 
charges  to  the  cost  of  cotton.  He  also  charges  to  it  the 
interest  on  his  investment  in  the  warehouse  and  baling  plant, 
$1000  per  month,  or  $12,000  per  year.  If  he  sells  the  cotton 
in  portions  of  one-tenth  of  the  whole  quantity  per  month  for 
ten  months,  each  portion  must  bear  as  part  of  its  cost  one- 
tenth  of  the  whole  interest  charge  for  one  year  on  the  plant, 
or  $1200,  plus  $500  per  month  for  the  number  of  months  it 
has  been  held,  as  its  share  of  the  interest  on  the  purchase 
price,  whether  it  is  shipped  the  first  month  or  the  tenth. 
If  it  is  shipped  the  first  month  the  space  it  occupied  in  the 
warehouse  remains  idle  until  the  next  crop  is  stored,  and  in 
this  case  the  cost  of  unavoidable  idleness,  a  necessary  part 


of  the  cost  of  doing  a  cotton  warehouse  business,  must  be 
charged  to  the  cost  of  the  cotton  handled. 

Example.  If  the  warehouse  is  rilled  October  1st  and  the 
shipments  of  each  month  are  billed  to  the  sales  department 
at  the  end  of  the  month  at  warehouse  cost  =  purchase  cost 
-r-interest+all  other  expenses,  such  as  taxes,  insurance, 
inspection,  baling  and  handling,  depreciation  of  plant, 
superintendence,  etc.,  and  that  out  of  the  receipts  from  sales 
(supposed  to  be  for  spot  cash)  an  amount  equal  to  the  sum 
of  the  purchase  and  interest  costs  is  reinvested  in  0  per  cenl 
bonds,  a  statement  of  the  cost  of  cotton  at  the  end  of  each 
month  for  purchase  and  interest  only,  omitting  the  expense 
costs,  might  be  made  as  below: 


End  of  Month. 

Lot    No. 

Purchase 
Cost. 

Interest  on 

Purchase 

Cost. 

Interest  on 
Plant  Cost. 

Rebate  of 
Interest. 

Purchase 
+ Interest. 

Total 

Invested  in 

Bonds. 

Interest  on  Each 
Lot  of  Bonds. 

Interest  on 

Interest 
Re-invested. 

1 

2 
3 

4 
5 
6 
7 
8 
9 
10 

$100,000 
100,000 

1 00,000 

100,000 
100,000 
100,000 
100,000 
100,000 
100,000 
100,000 

$500 
1,000 
1,500 
2,000 
2,500 
3,000 
3,500 
4,000 
4.500 
5,000 

$1,200 
1,200 
1,200 
1,200 
1,200 
1,200 
1,200 
1,200 
1,200 
1,200 

$66 
60 
54 
48 
42 
36 
30 
24 
18 
12 

$101,700 
102,200 
102,700 
103,200 
103,700 
104,200 
104,700 
105,200 
105,700 
106,200 

$101,700 
203,900 
306,600 
409,800 
513.500 
617.700 
722,400 
827,600 
933,300 

1,039,500 

Mos. 
1  1 
10 

9 

8 

7 

6 

5 

4 

3 

2 

$5,500 
5,000 
4,500 
4,000 
3,500 
3,000 
2.500 
2,000 
1.500 
1,000 

+  $93.50 

110 

121 .50 

128 

129  50 

126 

117.50 

104 

85  50 

Julv 

62 

August 

$1,000,000 

$27,500 

$12,000 

$390 

$1,039,500 

$1,039,500 

$32,500 

$1077.50 

The  sum  of  the  interest  on  purchase  cost  of  the  several 
lots,  $27,500,  and  the  interest  on  the  several  bond  invest- 
ments, $32,500,  is  $60,000,  the  same  as  would  have  been 
received  from  the  original  investment  of  $1,000,000  in 
6  per  cent  bonds.  If  greater  accuracy  is  desired,  the  charges 
against  each  lot  for  interest  on  plant  cost  may  be  reduced 
by  the  figures  in  the  column  headed  Rebate  of  Interest, 
representing  the  money  that  might  be  earned  by  the  invest- 
ment of  $1200  for  periods  ranging  from  eleven  months  to 
two  months.  This  modification  would  diminish  slightly 
the  figures  in  the  succeeding  columns.  Account  may  also 
be  taken  of  the  fact  that  each  lot  of  bonds  purchased  earns 
interest  (and  the  interest  may  be  compounded  quarterly) 
as  indicated  by  the  figures  in  the  last  column. 

Interest  and  Cost.  "  The  Journal  of  Accountancy  has 
consistently  maintained  that  except  for  the  purposes  of  com- 
parison the  inclusion  of  interest  as  an  element  of  cost  was 
technically  unsound  and  furthermore  was  unwise  from  a  public 
point  of  view."  (Editorial  in  J.  of  A.,  Vol.  22,  1916,  p.  206.) 
The  Bureau  of  Business  Research  of  the  graduate  School 
of  Business  Administration,  of  Harvard  University,  main- 
tains that  interest  is  an  element  of  cost.  It  says  (J.  of  A., 
Vol.  22,  p.  209) : 

The  bureau  has  come  to  the  conclusion  that  every  business, 
whether  or  not  incorporated,  should  have  a  specific  charge  for 
interest  on  the  cost  of  investment — the  amount  the  capital  could 
earn    if   invested   elsewhere.     No   business   is   truly   profitable 


unless  it  yields  the  proprietor  not  only  a  salary  for  his  time  and 
rent  for  his  store,  but  also  interest  on  his  investment.  The 
bureau  has  decided,  furthermore,  that  it  is  more  practicable 
from  an  accounting  standpoint  to  consider  this  interest  charge 
a  part  of  expense  rather  than  a  distribution  of  profit. 

The  Federal  Trade  Commission's  pamphlet  on  "  The 
Fundamentals  of  a  Cost  System  for  Manufacturers  "  says 
(J.  of  A.,  Vol.  22,  p.  213): 

As  seasoned  material  has  a  higher  value  .  .  .  the  interest  on 
the  capital  locked  up  during  the  seasoning  forms  in  a  sense  a 
direct  part  of  the  cost  of  the  material  ...  it  is  impossible  to 
get  true  relative  costs  unless  consideration  is  given  to  interest  on 
the  capital  employed. 

Cost  accountants  and  industrial  engineers,  for  comparative 
and  statistical  purposes,  almost  unanimously  advocate  including 
interest  in  cost,  and  so  far  as  interest  is  included  in  cost  for  com- 
parative or  statistical  purposes  it  serves  a  useful  purpose. 

Auditors,  on  the  other  hand,  .  .  .  take  the  ground  that  inter- 
est is  not  an  element  of  cost,  and  that  to  include  it  in  cost  results 
is  an  inflation  of  inventory  values  and  an  anticipation  of  profits. 

It  is  recommended  that  where  interest  on  the  investment 
is  treated  as  an  item  of  cost  that  the  interest  charged  to  the  goods 
be  eliminated  from  inventory  values,  and  that  in  preparing 
profit  and  loss  statements  the  amount  of  the  interest  charged  to 
costs  during  the  period  be  returned  to  income  under  the  specific 
caption  "  interest  on  investment." 

Suppose  a  furniture  factory  buys  on  the  first  day  of  the 
year  a  lot  of  green  lumber  for  $10,000  and  seasons  it  for 
a  year  before  using  it.     At  the  end  of  the  year  it  has  cost 


130 


BOOKKEEPING  AND   COST  ACCOUNTING 


in  addition  $400  for  storage,  insurance  and  taxes.  The 
accountant  also  adds  to  the  cost  $500  for  interest,  crediting 
Interest  on  Investment,  and  it  is  now  inventoried  at  $10,900. 
The  Profit  and  Loss  statement  will  show  no  profit  on  lumber 
but  a  profit  of  $500  on  interest  on  investment.  If  the  lumber 
had  not  been  bought,  but  instead  the  money  had  been  invested 
in  5  per  cent  bonds,  the  profit  due  to  interest  earned  would 
have  been  $500. 

Suppose  instead  of  buying  the  green  lumber  on  the  first 
of  the  year,  it  had  bought  it  on  the  last  day  of  the  year  after 
it  had  seasoned  in  a  lumber  yard.  If  the  price  of  green 
lumber  had  not  advanced,  the  seller  would  charge  not  less 
than  $10,900  in  order  to  cover  his  expenses,  including  interest 
on  his  investment.  It  is  evident  that  the  true  inventory 
value  of  the  lumber  at  the  end  of  the  year  is  $10,900  whether 
it  was  purchased  by  the  factory  on  the  first  or  on  the  last 
day  of  the  year. 

But  the  Trade  Commission  recommends  that  where  interest 
on  investment  is  treated  as  an  item  of  cost  "  the  interest 
be  eliminated  from  the  inventory  values  "  and  "  returned  to 
income  under  the  specific  caption  '  interest  on  investment.'  " 

It  is  not  clear  what  the  expression  "  returned  to  income  " 


means.  It  is  probably  a  technical  term  used  by  some 
accountants,  having  a  different  meaning  than  the  same 
words  when  used  in  ordinary  language.  There  is  no  "  in- 
come "  in  the  case,  but  only  "  outgo."  If  the  interest  is 
eliminated  from  the  inventory,  Lumber  account  would  appear 
as  follows : 

Lumber 

To  Cash  (purchase  price)  $10,000.  By  Int.  on  Invest.,  $500. 
To  Expense  (storage,  etc.),  $400.  Bal.  (Inventory)  $10,400. 
To  Interest  on  Investment,  $500. 

The  recommendation  of  the  Commission  is  certainly  wrong. 
The  inventory  value  is  $10,900  instead  of  $10,400,  for  it 
cannot  be  purchased  in  its  seasoned  state  for  less.  The 
$500  interest  is  part  of  the  cost  at  the  end  of  the  year  whether 
it  was  purchased  green  at  the  beginning  of  the  year  and 
stored  in  the  factory  sheds,  or  whether  it  was  purchased 
at  the  end  of  the  year  after  it  had  been  stored  in  the  lumber 
yard  of  the  seller.  In  the  first  case  the  purchaser  earns 
$500  interest  by  investing  $10,000  in  lumber,  and  in  the 
second  hand  case  he  may  earn  the  same  interest  by  investing 
the  money  in  bonds. 


CHAPTER  XIV 
CLASSIFICATION.     SYMBOLS.    BOOKKEEPING  BY  MACHINERY 


Classification.*  A  classification  shoujd  provide  for  an  orderly 
and  logical  grouping  of  subjects  which  will  bring  together,  more 
or  less  automatically,  in  their  proper  relationship  the  various 
divisions  and  subdivisions,  and  enable  the  location  of  any  desired 
subdivision  quickly  and  without  the  need  of  cross-indexing.  It 
must  also  be  flexible  enough  to  permit  wide  expansion. 

The  method  of  numbering  consecutively  in  one  series  is  the 
extreme  opposite  of  logical  classification. 

In  working  up  the  classification  appended  hereto,  the  writer 
has  followed  the  method  developed  by  Frederick  W.  Taylor, 
based  on  the  plan  made  familiar  by  Melvil  Dewey,  which  is  exten- 
sively used  in  cataloguing  books  in  libraries.  The  basis  of  the 
Dewey  classification  is  the  designation  by  a  numeral  of  each  of 
the  main  or  generic  groups  into  which  the  matter  classified  is 
divided. 

Mr.  Taylor  attempted,  in  endeavoring  to  classify  the  expenses, 
activities  and  products  of  a  manufacturing  plant,  to  use  the 
Dewey  scheme,  but  found  that  it  was  awkward  to  be  limited 
to  ten  classes  or  ten  subdivisions,  and  that  there  were  frequently 
numerical  values  to  be  embodied  in  a  symbol,  these  numerals 
being  in  danger  of  being  confused  with  those  used  to  designate 
classes  or  subclasses.  Hence  he  settled  upon  the  use  of  letters 
for  the  classification  proper,  which  has  the  advantage  of  per- 
mitting a  symbol  to  be  to  a  great  extent  mnemonic.  While 
Taylor  undoubtedly  developed  to  its  fullest  usefulness  the 
mnemonic  system  of  classification,  he  always  referred  to  Oberlin 
Smith  as  the  originator. 

In  using  this  system  we  ascertain,  by  reference  to  the  first 
sheet,  showing  the  main  classes,  the  letter  designating  that  in 
which  the  subject  with  which  we  are  concerned  would  naturally 
fall.  Next,  we  refer  to  the  sheet  giving  the  subdivisions  of  that 
class,  and  so  on  until  we  get  to  the  elementary  subdivision. 

The  final  test  of  any  classification  is  use,  so  the  one  here- 
with submitted  for  Machine  Shop  Practice  must  not  be  regarded 
as  either  complete  or  final,  but  only  as  a  starting  point  from  which 
to  work. 

PROPOSED  TENTATIVE  CLASSIFICATION  OF 
MACHINE   SHOP   PRACTICE 

Main  Classes 


A  Administration,  Management  and  Maintenance  of 
Plant  and  Machinery 


A  Administration,  Manage- 
ment and  Maintenance  of 
Plant  and  Machinery 

B  Building  and  Yards 

C 

D 

E  Employees 

F 

G  General — Covering  a  wide 
range  of  subjects  treated 
in  an  interrelated  manner 

H 

J 

K 

L 

M  Machinery  (other  than  trans- 
portation) 

N 


P  Power  Transmission 

R 

S  Materials — Their  purchase, 
storage  and  handling,  and 
machinery  for  hoisting 
and  transportation,  of 
them 
T  Tools  and  Appliances — ■ 
Their  construction,  use 
and  maintenance 

U 

V  Various  Features  of  Ma- 
chine Shop  Practice  not 
otherwise  classified 

W 

X 

Y 

Z 


AA  Accounting — Costkeeping 

AB  Building  Maintenance  — ■ 
Caring  and  Cleaning 

AC* 

AD  Drawings  for  Machine 
Shop  Use 

AG  General — Relating  to  Man- 
agement and  Organiza- 
tion treated  as  a  whole 


AM  Maintenance  of  Machin- 
ery 
AP  Planning  of  Work 
AS  Supervision 
AT  Timekeeping 
AW  Wage  Systems 


B  Buildings  and  Yards 

BC  Construction — Types  BS  Sanitation 

BF  Fire  Protection  BV  Ventilation 

BH  Heating  BY  Yards 
BL  Lightning 

E  Employees 


ER  Record  of  Employees 
ET  Training     of    Workers  — 

Apprenticeship,      Shop 

Schools,  etc. 


EB  Beneficial  Associations  and 
Other  Shop  Organiza- 
tions 

ED  Discipline 

EE  Employment — Selection  of 
employees  with  respect 
to  fitness  for  work 

EH  Health  Maintenance 

M  Machinery  (Other  than  Transportation) 

MP  Punching,    Stamping   and     MV  Various    Machinery   not 

Bending  otherwise  classified 

MT  Machine  Tools  MW  Welding 

MT  Machine  Tools 


MTA  Abrasive  (Grinding)  Ma- 
chinery 

MTB  Boring  Mills 

MTC  Cutting-off  Machines 

MTD  Drill  Presses 

MTG  General  —  Relating  to 
more  than  one  kind  of 
machine 


MTK  Keyseaters 

MTL  Lathes 

MTM  Milling  Machines  and 
Rotary  Planers 

MTP  Planers,  Shapers,  and 
Slotters 

MTV  Various  Machine  Tools 
not  otherwise  classi- 
fied 


MTA  Abrasive  (Grinding)  Machinery 


MTAD  Drill  Grinders 
MTAP  Polishing  Machines 
MTAT  Tool  Grinders 
MTAU  Universal  Grinders 


MTAV  Various  Grinding  Ma- 
chines not  otherwise 
classified 

MTAW  Emery    Wheels   — 
Their  Construction 
Materials,  and  Uses 


*  H.  K.  Hathaway,  Trans.  A.  S.  M.  E.,  1916. 


*  Left  blank.  In  Mr.  Hathaway's  paper  there  are  numerous 
blank  spaces  in  each  subdivision,  as  in  his  list  of  main  classes,  all  the 
letters  of  the  alphabet  being  used  except  I,  O  and  Q.  The  blanks 
are  omitted  here  in  order  to  save  space.  It  is  well  not  to  use  Z,  as 
when  written  it  is  apt  to  be  mistaken  for  the  figure  2. 


131 


132 


BOOKKEEPING  AND   COST  ACCOUNTING 


P  Power  Transmission 

PB  Belting  PR  Rope  Drives 

PE  Electrical  PS  Shafting    —    other     than 

PL  Lubrication  Countershafts       (which 

are  included  with  ma- 
chines) 

S  Materials,  their  Purchase,  Storage,  and  Handling,  and 
Machinery  for  their  Hoisting  and  Transportation 


SM  Characteristics  of  Various 

Materials 
SP  Purchasing 
SS  Shipping 


SA  Store-room  Arrangement. 
and  Store  System 

SH  Handling  —  Transportation 
while  in  process  of  manu- 
facture and  the  imple- 
ments and  machinery 
used  for  transportation 


T  Tools   and   Appliances,    their   Construction,    Use   and 
Maintenance 


TA  Tool-room  Arrangement. 
and  Administration 

TC  Cutting  Tools 

TG  Grinding,  Lapping  and  Pol- 
ishing 

TH  Holding  Devices 

TJ  Jigs,  Fixtures,  and  All  Spe- 
cial Tools  for  Duplicate 
Work 

TM  Measuring  Tools 


TP   Punching,     Bending    and 
Stamping 

TV  Vise  and  Floor  Work 
(Including  Erection  and 
Assembling  and  the 
Tools  and  Appliances 
used  in  connection 
therewith) 


TCB   Broaching  Tools 
TCC   Cold  Saws 
TCD  Drilling  and  Boring  Tools 
TCM  Milling  Cutters 


TC  Cutting  Tools 

TCP  Paring  Tools 

TCS   Slotter  Tools.        (Other 

than  Paring) 
TCT  Thread-cutting  Tools 


Letter  Symbols  Versus  Numbers.  Letters  for  symbols 
have  some  advantages  over  numbers.  In  the  first  place  they 
may  be  made  mnemonic,  aiding  one  to  remember  the  thing 
signified  by  them.  Secondly,  fewer  characters  are  needed, 
since  numbers  are  made  of  only  ten  digits,  0  to  9  inclusive, 
while  22  different  letters  (of  one  style)  may  be  used,  omitting 
0, 1  and  Z  because  they  are  apt  to  be  mistaken  for  0,  1,  and  2, 
and  Q  because  it  is  difficult  to  make;  if  two  styles  are  used, 
capitals  and  lower  case,  there  are  44  available  characters. 
The  number  of  different  tilings  that  may  be  represented  by 
combinations  of  two,  three,  and  four  characters  is  as  follows: 


One 

Two 

Three 

Four 

No.  of  digits 
No.  of  letters: 
One  style 
Two  styles 

10 

22 

44 

99 

484 
1,936 

999 

10,648 
85.18* 

9,999 

234,256 
3,748,096 

The  following  is  a  mnemonic  listing  of  operations  in  a 
machine  shop,  the  final  letter,  lower  case  g,  representing 
"  ing  "  or  operation  and  the  capital  initial  letter  the  first 
letter  of  the  name  of  the  particular  tool  or  operation. 


Ag  Assembling 

Bg  Boring 

Bw  Bench  Work 

Cg  Centering 


Cpg  Chipping 
Cog  Cutting  off 
Dg    Drilling 
Eg     Erecting 


Fg     Filing 

Rg     Reaming 

Fng  Finishing 

Sg      Shaping 

Gg     Grinding 

Slg     Slotting 

Hg    Helping 

Tg      Turning 

Lg     Laying  out 

Tgr    Rough  Turning 

Lng  Lining 

Tgf    Finish  Turning 

Mg    Milling 

Thg   Threading 

Pg      Planing 

Tpg   Tapping 

Phg    Polishing 

Vw     Vise  Work 

Nomenclature  of  Machine  Details.  (Abstract  of  a  paper  by 
Oberlin  Smith,  Trans.  A.  S.  M.  E.,  1881.) 

The  requisites  for  a  good  system  of  names  and  symbols  are: 
1st,  isolation  of  each  from  all  others  that  did,  do,  or  may  exist 
in  the  same  establishment.  2d,  suggestiveness  of  what  machine, 
what  part  of  it,  and,  if  possible,  the  use  of  said  part — conform- 
ing, of  course,  to  established  conventional  names  as  far  as  prac- 
ticable. 3d,  brevity  combined  with  simplicity.  Of  the  im- 
portance of  isolation  to  prevent  mistakes  and  confusion;  of  sug- 
gestiveness to  aid  the  memory;  of  brevity  to  save  time  and 
trouble,  it  is  hardly  necessary  to  speak. 

To  define  Terms:  "Machine  name"  and  "Machine  symbol" 
refer  respectively  to  the  name  and  symbol  of  the  whole  machine 
or  other  article  of  manufacture;  for  it  will  be  noticed  that  the 
system  is  applicable  to  almost  any  products,  except  those  of  a 
textile  or  chemical  nature.  "Piece  name"  and  "Piece  symbol," 
in  like  manner,  refer  to  the  separate  pieces  of  which  the  whole  is 
composed. 

Our  system,  as  finally  decided  upon,  is  as  follows:  Machine 
names  and  piece  names  are  determined  by  the  designer  in  general 
according  with  the  principles  already  pointed  out,  being,  of 
course,  made  as  brief  and  suggestive  as  possible,  with  no  two 
machine  names  alike,  and  no  two  piece  names  alike  in  the  same 
machine.  In  this  nomenclature  no  positive  laws  can  be  followed 
but  those  of  common  sense  and  good  English.  A  machine  sym- 
bol consists  of  a  group  of  three  arbitrary  capital  letters.  A 
piece  symbol  consists  of  an  arbitrary  number  and  follows  the 
machine  symbol,  connected  by  a  hyphen;  thus,  FPA-2  might 
symbolize  the  force-pump  handle,  smallest  size.  The  machine 
symbol  may  be  used  alone  when  required,  as  FPA. 

As  thus  described,  these  symbols  fully  possess  the  qualities  of 
isolation  and  brevity.  To  make  them  also  suggestive,  some 
attention  must  be  paid  to  what,  letters  to  use.  In  practice,  we 
aim  to  make  the  first  two  letters  the  initials  of  the  general  name 
of  the  machine,  and  the  last,  letter  one  of  an  alphabetical  series 
which  will  represent  the  size  of  the  machine.  An  example  of 
this  is  shown  in  the  symbol  for  the  smallest-sized  force  pump 
FPA.  If  there  is  any  chance  of  a  future  smaller  or  intermediate 
size,  gaps  should  be  left  in  the  alphabetical  order.  This  "ini- 
tial" method  cannot  always  be  strictly  followed,  because  of  such 
duplicates  as  FPA  for  force  pump  and  foot  press.  The  remedy 
would  be  to  change  one  initial  for  one  beginning  some  synonym- 
ous adjective,  that  is,  foot  presses  might  be  symbolized  TPA, 
assuming  that  it  stands  for  treadle  press.  Usually  the  least 
important  machine  should  be  thus  changed.  From  this  it  will 
be  seen  that,  in  defining  the  theory  of  this  scheme,  the  words 
"arbitrary  letters"  were  purposely  used.  The  idea  is  to  make 
the  system  thoroughly  comprehensive.  There  might  be  such  a 
number  of  machines  having  identical  initials  that  the  letters 
would  be  almost  arbitrary.  In  practice,  the  designer  can  usually 
succeed  in  making  the  symbols  sufficiently  suggestive. 

In  considering  how  many  letters  to  use  in  a  symbol,  considera- 
tion of  brevity  advised  two,  suggestiveness  three  or  four.  Two 
letters  did  not  allow  of  enough  permutations  nor  indicate  well 
enough  the  kind  and  size  of  machine.  Three  seemed  amply 
sufficient  in  the  first  respect,  as  it  provided  over  17,000  symbols. 
If,  for  any  reason,  in  the  future  four  letters  should  seem  desirable, 
the  addition  of  another  would  not  materially  change  the  system. 
If  three  letters  hyphened  to  a  number  of  one,  two  or  three  digits 


CLASSIFICATION.     SYMBOLS.     BOOKKEEPING    15V    MACHINERY 


133 


should  seem  bulky,  remember  that  this  symbol  can  stand  by 
itself  anywhere  and  express  positively  the  identity  of  the  piece. 
Its  comparative  brevity  is  shown  by  comparing  the  second  and 
third  columns  of  the  following  table  (A).  In  the  different  lines 
an  idea  is  given  of  the  application  of  the  system  to  a  variety  of 
products  not  usually  made  in  any  one  shop. 

Table  A 


1st 

2nd 

3rd 

4th 

5th 

6th 

1     Full  Name  of  Machine  and  Piece 

Our  Symbol 

Symbolic  Name  as 

Characters 

Characters 

Excess  of 

for  it 

often  used 

in  Col.  2 

in  Col.  3 

Col.  5 
over  4 

6"  X4"  Engine  Lathe,  spindle  head 

ELA-4 

Engine  Lathe  A-4 

4 

13 

9 

No.  4  Power  Press  frame 

PPD-I 

Power  Press  D-l 

4 

12 

8 

7"  XI 4"  Steam  Engine,  crank  shaft 

SEG-51 

Steam  Engine  G-51 

5 

14 

9 

Buckeye  Mowing  Machine,  left  axle  nut 

MMD-81 

Mowing  Machine 
D-81 

5 

16 

II 

No.  3  Glass  Clock,  main  spring 

GCC-105 

Glass  Mantel  Clock, 
C-105 

6 

20 

14 

One-Hole  Mouse-trap,  choker  wire 

MTA-3 

Wooden  Mouse-trap, 

A-3 

4 

17 

13 

Table  B 

FPL 

N 

o.  3  Foot  Press 

Weight 

Piece  No. 

Same  as 

Piece  Name 

Material 

Quantity 

Rough 
Weight 

Finished 
Weight 

Aggregate 
Finished 
Weight 

1 

Frame 

Cast  Iron 

1 

220 

200 

200 

2 

Gib 

Cast  Iron 

1 

10 

9 

9 

3 

Side  Bar 

Cast  Iron 

1 

45 

40 

40 

4 

Front  Leg 

Cast  Iron 

2 

30 

30 

60 

5 

Back  Leg 

Cast  Iron 

1 

40 

40 

40 

6 

Treadle 

Cast  Iron 

1 

17 

15 

15 

7 

Lever 

Cast  Iron 

1 

85 

80 

80 

8 

FPH-8 

Lever  Weight 

Cast  Iron 

4 

5 

5 

20 

9 

Pitman 

Cast  Iron 

1    . 

12 

10 

10 

10 

FPH-10 

Clamp  Sleeve 

Cast  Iron 

2 

3 

2'4 

4J-2 

21 

Lever  Pin 

Steel 

1 

2>2 

2 

2 

26 

FPJ-26 

Treadle  and  Pitman  Bolt 

Iron 

3 

X 

i  ., 

1  '; 

Table  B  is  a  specimen  of  part  of  a  page  of  our  "  Symbol  Book," 
in  which  are  recorded  any  machines  which  have  arrived  at  such 
a  state  of  perfection  and  salability  as  to  be  marked  "  Standard  " 
on  our  drawings. 

This  table  almost  explains  itself.  The  piece  numbers  in  the 
first  column  do  not  have  the  letters  prefixed,  because  the  latter 
stand  at  the  top  of  the  column.  "  Same  as  "  means  that  the 
piece  is  identical  with  a  piece  belonging  to  some  other  machine, 
and  can  be  manufactured  with  it.  If  it  is  common  to  several 
machines  in  a  set,  the  smallest  of  the  set  in  which  it  occurs  is 
given.  The  "  quantity  "  column  tells  the  number  of  pieces  of  a 
kind  required.  The  last  "  weight  "  column,  added  upward, 
shows  the  total  weight  of  the  machine.  The  piece  numbers  are 
"  gapped  "  after  each  kind  of  material,  and  also  at  the  ends  of 
"  groups,"  as  described  further  on.  This  is  to  allow  for  future 
changes  and  additional  pieces;  also  that  other  nearly  similar 
machines  having  more  pieces  may,  in  general,  have  the  same 
piece  numbers. 

The  order  in  which  the  pieces  are  numerically  arranged  cannot 
follow  positive  rules  in  all  cases.  In  our  list  of  instructions 
(too  long  to  be  here  quoted)  we  direct  a  classification  by  materials. 
In  each  class  we  group  pieces  of  the  same  general  character,  in 
regard  to  the  prevailing  work  to  be  done  upon  them,  and  in 
natural  "  machine  shop  "  orders;  i.e.,  first  planing,  then  drill- 
ing or  boring,  then  turning.  We  also  aim  to  place  the  heaviest 
and  most  important  pieces  first.  Between  each  group  we  "  gap  " 
the  numbers. 

Regarding  position  in  naming  pieces,  we  assume  a  front  to 
the  machine  (where  the  operator  is  most  likely  to  be  placed), 
and  define  direction  tersely  as  "  forward,"   "  back,"   "  right," 


"left,"  "down,"  "up."  The  adjectives  of  position  prefixed 
to  piece  names  are,  of  course,  derived  from  these  words,  as 
"  upper,"  "  lower,"  etc.  A  perpendicular  row  of  similar  pieces, 
say  5,  would  be  rated  upper,  second,  third,  fourth  and  lower. 
A  number  of  different-sized  pieces  of  similar  name  may,  in 
like  manner,  be  prefixed  smallest,  second,  third,  etc. 

Before  closing,  a  brief  refer- 
ence to  certain  (two)  supple- 
mentary symbols  may  not  be 
out  of  place.  One  is  a  small 
letter  after  a  piece  symbol  (as 
FPL-21-a),  signifying  thai  i  lie 
piece  is  obsolete,  t  he    standard 

FPL-21  having  been  altered. 
After  a  second  alteration,  the 
last  obsolete  piece  would  be 
suffixed  "b,"  and  so  on.  Thus, 
duplicate  pieces  of  old-style 
machines  can  lie  identified  and 
supplied  to  customers.  The 
other  symbol  referred  to  is  to 
indicate  the  number  of  the 
operation  in  the  construction 
of  a  piece,  and  is  written  thus: 
FPL-21-lst,  FPL-21-2d,  etc. 
Its  use  is  of  great  value  on 
detail  dm  wings,  time  cards  and 
cost  records. 

A  good  system  of  symbols 
must  have  four  qualities: 

1.  Simplicity  combined  with 
efficiency. 

2.  Definiteness  —  just  one 
symbol  to  one  thing,  and  one 
thing  to  one  symbol. 

3.  Mnemonic  quality;  that 
is  it  should  be  capable  of  being 
easily  remembered. 

4.  It  must  be  brief. 
Here  is  a   choice  specimen 

from  a  catalog:  "Lower  left- 
hand-eutting-blade  -  set-screw- 
Iock-nut" — a  full-blooded  linguistic  dachshund. — C.  B.  Thomp- 
son. 

Record  of  Equipment.  A  method  of  keeping  track  of 
every  piece  of  equipment  in  a  power  plant  is  shown  by  W. 
Sailes,  in  Power,  March  21,  1916.  It  may  be  used  as  a 
model  for  the  record  of  all  the  machinery  in  a  factory,  giving 
the  original  cost,  present  valuation,  condition,  performance, 
and  cost  of  upkeep  of  each  particular  machine.  The  record 
is  kept  on  cards,  like  WS1,  classified  in  groups  and  filed  in 
one  or  more  cabinet  drawers,  as  shown  in  Fig.  9. 


Class No 

Service 

Special  Data: 

Maker 

Date  of  Purchase 

Price  Delivered 

Blue  Print  No 

List  of  Repair  Parts 

Nearest  House  carrying  Repair  Parts. 

Performance  Guarantees 

Accessories: 


Location 

Method  of  Operation . 


Purchased  through . 
Date  Installed. 
Cost  Installed. 

Mfrs.  Serial  No .  .  . 


Purchased  from 


Price 


Cost  Installed 


Form  WS1. — Record  of  Individual  Equipment. 


134 


BOOKKEEPING  AND   COST  ACCOUNTING 


Record  of  Repairs,  Inspections,  etc. 


Date 

Report  of  Details 

\>w 

Parts 

or  Material  Used 

Total  Cost 

Initial  Cost 

1915 

1916 

1917 

1918 

1919 

1920 

1921 

1922 

1923 

Inventory 
Value 

Main  Unit  ($      ) 

Accessories  ($      ) 

Total  Valuation 

Class  and  No  total  valuation  of  all  tools   at   the   beginning  of  any  year; 

(9)  the  total  valuation  of  all  tools  at  the  close  of  any  year. 


Notes: 


(Reverse  of  Card.) 


Fig.  9. — Method  of  Indexing  and  Filing  Cards. 


Mr.  Sailes  says:  "  The  first  step  in  a  complete  power-plant 
record  should  be  the  identification  of  every  piece  of  equipment 
in  the  plant,  and  the  establishing  of  a  record  of  its  cost,  upkeep, 
performance,  etc.,  thereby  simplifying  the  matter  of  keeping  a 
schedule  of  the  present  valuation,  condition,  capacity  and  cost 
of  upkeep  of  each  particular  machine.  This  system  of  identi- 
fication also  prevents  confusion  when  giving  instructions  con- 
cerning any  particular  piece  of  equipment. 

"  One  of  the  best  methods  is  to  classify  all  power-plant  appa- 
ratus into,  say,  three  main  groups:  (1)  Steam  Generating;  (2) 
Power  Generating;   (3)  General  Maintenance." 

Plant  Inventory.  Mr.  H.  M.  Norris  designed  the  two 
forms  shown  below  for  keeping  a  continuous  record  of  the 
machine  tools  in  a  shop,  with  their  original  cost,  cost  of 
installation  and  of  repairs,  depreciation,  and  appraised  value 
in  different  years.  The  forms  are  4x6  in.,  and  have  a 
margin  for  filing  in  a  loose-leaf  book. 

Mr.  Norris  says:  "  The  book  accomplishes  nine  distinct 
objects.  It  shows:  (1)  just  what  tools  have  been  made  for 
each  machine;  (2)  the  date  when  each  was  made;  (3)  what 
each  cost;  (4)  the  total  valuation  of  the  tools  added  each 
year;  (5)  the  amounts  by  which  each  has  been  depreciated; 
(6)  the  year  in  which  said  depreciation  was  made;  (7)  the 
amount  by  which  the  full  set  has  been  depreciated;    (8)  the 


STANDARD  PLANT  LEDGER 

Machine              No.  3  Plain  Miller 

Maker           Cin.  Milling  Machine  Co.                                                   Cost  $  650. 

Location:     Floor            2                        Row              2                  No.  8 

Purchased                    1-6-90 

Estimated  Life                     15                       Yrs. 

NeworS.H.                   New 

Prob.  Selling  Value:  $    1S5. 

Weight                 3t00                   Pounds  [Req'd  Rate  of  Dep'n              3 

91 

598 

96 

895 

92 

550 

97 

113 

93 

506 

98 

120 

91 

416 

99 

386 

95 

129 

Losses,  Repairs  or  Additions  Tending  to  Neutralize  or 
Augment  Depreciation 

Description 

Order 

Date 

Credit 

Debit 

General  Overhauling 

8621 

12 

15 

96 

50 

00 

Rack  Attachment 

Sold 

3 

6 

97 

10 

00 

2712 

8 

It 

.. 

80 

IHJ 

[ft  additional  lines) 

For  Cost  of  Installation  and  List  of  Attachments 
See  Reverse  Side 

Form  Nl.    Inventory  of  Tools. 


SPECIAL  PLANT  LEDGER 

Tools  for            No.  1  Radial  Drill       Symbol  61 

Mark 

Made 

Cost 

Total 

1890 

1891 

1892 

1893 

6  A  1 

25 

"     2 

15 

5 

•'    3 

30 

70 

«    1 

2 

4 

90 

48 

:,0 

e 

"    5 

4 

6 

.. 

6 

75 

•■    6 

7 

15 

10 

25 

65 

50 

10 

i-> 

a 

"    7 

1 

3 

91 

8 

S 

»    8 

:: 

7 

.. 

5 

50 

1 

51) 

■a 
a 

"    9 

5 

S 

.. 

10 

25 

23 

75 

a 

oa 

Valuation  in  January 

70 

00 

130 

50 

112 

5U 

Shrinkage  During  Year 

5 

00 

11 

75 

Valuation  in  December 

05 

00 

118 

75 

Form  N2.     Reverse  of  Nl. 

"  Instead  of  having  to  go  over,  and  revalue,  from  one  to 
two  thousand  special  tools  every  year,  it  is  necessary  only 
to  note  what  tools  have  been  rendered  obsolete  since  the  last 
inventory,  the  entries  being  made  by  the  chief  draftsman  at 
the  time  of  making  the  alterations  in  the  corresponding 
drawings  and  patterns  which  destroyed  their  usefulness." 


CLASSIFICATION.     SYMBOLS.     BOOKKEEPING   BY   MACHINERY 


135 


Each  individual  machine  in  a  group  should  carry  its  own 
particular  designating  letter  and  number.  For  instance  the 
subdivision  might  be  made  as  follows: 

STEAM-GENERATING  EQUIPMENT,  "  S  " 

Boilers B  Economizer HE 

Stokers S  Water  Meter WM 

Blower  Equipment D  Boiler-Feed  Pumps FP 

Coal  and  Aah  Equipment A  Water  Softener W 

Coal  Weigher CW  Steam  Meter SM 

Ash  Weigher AW  Gas-Analysis  Outfit CM 

Feed-Water  Heater H 

POWER-GENERATING  EQUIPMENT,  "  P  " 

Turbines T         Condensers C 

Engines E        Condenser  Air  Pumps CPA 

Generators G        Condenser  Water  Pumps.  .  .  CPW 

Exciters GE     Condenser  Circ.  Pumps CPC 

GENERAL  MAINTENANCE,  "  M  " 

Cranes CH     Air  Compressors AC 

Fire  Pumps FP      Elevator  Pumps TE 

In  a  plant  having  eight  boilers,  the  designation  would  be 
Sb-1  to  Sb-8.  If  there  were  three  turbines  the  designation 
would  be  Pt-1  to  Pt-3.  Cranes  would  be  designated  as  Mch-1, 
etc. 

Wherever  possible  a  standard  form  of  lettering,  as  well  as 
color,  should  be  used. 

BOOKKEEPING  BY  MACHINERY 

Bookkeeping  Machines.  Are  you  still  paying  large  salaries 
for  dips  into  inkwells,  "flourishes,"  blottings  and  ink-spots — 
for  illegibility,  mistakes  and  erasures — for  brain  additions  and 
subtractions,  late  statements  and  trial  balances  freighted  with 
trials? 

Why? — when  a  bookkeeping  machine  will  substitute  neat 
readable  type-printed  entries,  machine-accurate  figuring — will 
save  hours  of  time  daily,  keep  each  account  in  daily  balance, 
prove  postings  daily,  get  statements  out  on  the  first,  and  re- 
duce trial  balances  to  a  mere  formality? — (From  an  advertise- 
ment in  Syste77i). 

The  great  advance  in  bookkeeping  methods  made  in  the 
last  thirty  years  consists  chiefly  in  getting  rid  of  the  labor 
of  making  pen-and-ink  entries  in  large  books,  and  of  trans- 
cribing from  one  book  to  another,  and  of  "brain  additions 
and  subtractions."  The  means  by  which  these  advances 
have  been  made  are:  cards;  loose-leaf  books;  carbon 
paper;  typewriting  machines;  mimeograph  and  other 
duplicating  machines;  cash  registers;  filing  cases  and  cab- 
inets, with  their  folders,  flags  and  indexes;  index  racks; 
adding  machines;  calculating  machines;  tabulating  machines; 
photostats;  addressing  machines.  Descriptions  of  these 
numerous  devices  are  unnecessary  here,  as  most  of  them 
are  well  advertised,  and  those  interested  may  obtain,  by 
writing  to  their  manufacturers,  illustrated  circulars  describ- 
ing them.  Following  is  a  list  of  several  leading  manufacturers, 
taken  from  the  advertising  pages  of  System. 

Baker-Vawter  Co.,  Benton  Harbor,  Mich,  and  Holyoke,  Mass. 
Filing   systems,  steel  ledger  and  statement  tray. 

Burroughs  Adding  Machine  Co.,  217  Broadway,  New  York. 
Figuring  and  bookkeeping  machines;  ledger-posting  ma- 
chines; 98  machine  models. 

National  Cash  Register  Co.,  Dayton,  Ohio.  Cash  registers; 
credit  files,  "cuts  outall  bookkeeping  of  customers'  accounts." 

Dalton  Adding  Machine  Co.,  Norwood-Cincinnati,  Ohio. 
Adding  and  calculating  machine. 


Stickney  and  Montague,  54  Franklin  St.,  New  York.     "Direx- 

All"  addressing  and  listing  machines. 
Wilson-Jones    Loose    Leaf    Co.,    3021    Carroll    Ave.,    Chicago. 

Loose-leaf  systems  and  binders. 
Cincinnati     Time     Recorder    Co.,     Cincinnati,     Ohio.     Clock 

records  and  time  keepers.     60  models. 
Graphic    Duplicator    Co.,    228    West    Broadway,    New    York. 

Duplicating  machines. 
Elliott-Fisher    Co.,    Harrisburg,    Pa.     Bookkeeping    machines. 
International    Time    Recorder    Co.,    Endicott,    N.     Y.     Time 
recorders,  250  styles. 

The  Rand  Co.,  North  Tonawanda,  N.  Y.  Visible  index,  10 
styles. 

John  C.  Moore  Corporation,  Rochester,  N.  Y.  Loose-leaf 
forms  and  binders. 

Stromberg  Electric  Co.,  Harvester  Bldg.,  Chicago,  111.  Time 
recorder  for  cost  keeping.  It  records  on  the  job  ticket  the 
starting  and  stopping  times  in  hours  and  decimal  fractions, 
automatically  deducting  the  dinner  and  other  non-working 
periods.  Electrically  operated  recorders  controlled  by 
a  master  clock. 

The  C.  J.  Root  Co.,  Bristol,  Conn.     Automatic  counters. 

Kalamazoo  Loose  Leaf  Binder  Co.,  Kalamazoo,  Mich.  Loose- 
leaf  devices  and  accounting  systems. 

The  A.  W.  Shaw  Co.,  Chicago,  111.  Correspondence  course  in 
retail  merchandising  and  stores  records. 

Addressograph,  910  W.  Van  Buren  St.,  Chicago.  Addressing 
and  listing  machines. 

Duplicator  Manufacturing  Co.,  Chicago,  111.  Duplicating 
machines. 

Marehant  Calculating  Machine  Co.,  Oakland,  Cal.  208  Broad- 
way, New  York. 

The  Automatic  Time  Stamp  Co.,  158  Congress  St.,  Boston,  Mass. 
Time  stamps. 

The  Elliott  Addressing  Machine  Co.,  Cambridge,  Mass.  Hand, 
foot  and  electric  addressing  machines. 

Mailometer  Company,  Detroit,  Mich.  Machine  for  sealing, 
stamping  and  counting  envelopes  250  per  minute. 

Alvah  Bushnell  Co.,  925  Filbert  St.,  Philadelphia,  Pa.  Vertical 
file  pockets. 

Art  Metal  Construction  Co.,  Jamestown,  N.  Y.  Steel  filing 
cabinets. 

Chas  C.  Smith,  Exeter,  Neb.     Index  tags  and  signals. 

\Y.  A.  Morschhauser,  1  Madison  Ave.,  New  York.  Calculat- 
ing machine. 

Felt  &  Tarrant  Mfg.  Co.,  1733  N.  Paulina  St.,  Chicago,  111. 
"Comptometer"  adding  and  calculating  machine. 

A.  B.  Dick  Co.,  Chicago  and  New  York.  Edison-Dick  mimeo- 
graph. 

The  J.  C.  Hall  Co.,  Providence,  R.  I.  Voucher  check  sys- 
tem. 

Commercial  Camera  Co.,  Rochester,  N.  Y.  The  "Photostat," 
for  copying  cost  sheets,  vouchers,  statements  and  ac- 
countings. Copies  direct  on  paper  in  a  few  minutes.  Write 
for  the  Photostat  book. 

The  Zenith  Systems  Corporation,  Tonawanda,  X.  Y.  Card 
filing  system,  visible  index. 

The  Hollerith  Tabulating  System,  which  was  first  used 
in  compiling  the  records  of  the  U.  S.  Census  of  1890,  is  now 
extensively  used  by  large  manufacturing  concerns  for  lessen- 
ing the  labor  of  accounting  and  cost  finding.  The  following 
description  is  taken  from  circulars  of  The  Tabulating  Machine 
Co.,  New  York  City. 

The  essence  of  the  Hollerith  System  is  the  preparation  of  a 
slip,  or  card,  to  represent  each  transaction  (or  essential  par- 
of  a  transaction)  in  such  a  form  that  these  slips  can  after- 
wards be  sorted  out  upon  any  desired  basis  of  classification, 
and  that  each  group — having  been  so  sorted — may  be  added, 


136 


BOOKKEEPING  AND   COST  ACCOUNTING 


so  as  to  show  the  total  effect  of  this  group  of  transactions 
under  any  desired  number  of  headings. 

The  "  System  "  consists  of  three  machines:  The  Puncher 
(Fig.  10),  the  Sorter  (Fig.  11),  and  the  Tabulator  (Fig. 
12). 

The  Puncher  is  operated  somewhat  like  an  ordinary 
typewriter,  but,  being  simpler,  can  be  worked  more  rapidly. 
Its  purpose  is  to  cut  perforations  in  cards  (Fig.  13),  so  as  to 


enable  the  other  two  machines  to  "  take  hold  of  "  them.  All 
cards  for  use  in  the  standard  machines  are  uniform  in  size 
(7|X3j  in.);  but  the  headings  given  to  the  various  columns 
may  be  varied  to  suit  particular  requirements.  The  top 
right-hand  corner  of  the  card  is  cut  off,  to  ensure  that  all 
cards  are  placed  in  the  machines  the  right  way  up. 

The  card  has  45  vertical  rows  of  figures  (letters  are  some- 
times used  in  some  of  the  columns). 


Fig.  10. — The  Pdncher. 


Fig.  11. — The  Sorter. 


Fig.  12. — The  Tabulating  Machine. 


When  cards  are  being  punched  in  series  many  consecutive 
cards  may  require  to  be  punched  identically  in  (say)  the 
first  nine  or  ten  columns.  To  save  time,  a  "  Gang  Punch  " 
is  often  employed  for  this  purpose,  which  can  be  rapidly 
"  set  "  by  the  operator  to  any  desired  combination,  and  will 
punch  cards  a  dozen  or  so  at  a  time.  Punching  is  not  highly 
skilled  work:  boys  or  girls  soon  learn  to  punch  cards  accurately 
at  the  rate  of  250  per  hour.  Each  card  represents  a  "  trans- 
action." 

The  Sorting  Machine  (Fig.  11)  is  worked  by  electricity 
from  an  ordinary  lighting  socket.  By  its  aid  anyone  can  sort 
cards  at  the  rate  of  about  15,000  per  hour.  The  operator 
sets  the  pointer  of  the  machine  against  the  column  repre- 
senting the  basis  upon  which  the  sorting  is  to  proceed,  and  the 
machine  does  the  rest.  The  cards  are  placed  vertically  in 
position  on  the  table  of  the  machine  in  batches,  and  in  due 
course  find  their  way  into  one  or  another  of  the  receptacles 
*hown  one  above  the  other  in  the  lower  part  of  the  machine. 


Cards  not  perforated  at  all,  which  may  have  been  included 
by  mistake,  are  also  sorted  out  automatically.  If  the  sorting 
basis  consists  of  more  than  one  column  of  figures  the  cards  are 
first  sorted  for  the  hundreds  column,  then  each  hundred 
group  must  be  sorted  according  to  the  tens  column,  and  sub- 
sequently according  to  the  units  column.  Operating  at  a 
speed  of  15,000  per  hour,  it  is  not  a  lengthy  process. 

The  Tabulating  Machine  (Fig.  12)  is  also  worked  by  elec- 
tricity. It  takes  the  cards  sorted  out  into  groups  by  the 
preceding  process,  a  group  at  a  time,  and  shows — in  as  many 
columns  as  may  be  required — the  total  of  any  desired  col- 
umns thereof  in  tabulated  form.  Fig.  12  model  shows  five 
tabulated  divisions.  The  machine  will  classify  about  9000 
cards  per  hour. 

The  sectional  totals  must,  of  course,  be  taken  off  the 
Tabulating  Machine  by  hand,  and  built  up  into  daily  totals. 
An  effective  check  is  secured  by  agreeing  the  "  daily  "  totals 
arrived  at  upon  one  basis  of  sorting  with  the  "  daily  "  totals 


CLASSIFICATION.     SYMBOLS.     BOOKKEEPING    BY    MACHINERY 


137 


arrived  at  by  another  basis  of  sorting;  but  there  is  no  limit 
to  the  number  of  different  ways  in  which  the  same  series  of  cards 
may  bebuilt  up  into  daily  totals — each,  of  course,  shoiving  a 
different  basis  of  classification.     For  illustration,  the  daily 


Form  1936  Revised                                            J.T.150 
Depmt. 
THE  PENNSYLVANIA  STEEL  CO. 

Man's 
No. 

0 

Date 

Dec.  22 

Time  Started                                A.M.  7 
Name                fyttiwv  Z>  °& 

P.M.  6 

Time 
Finished 

No. 
Vat. 

Order  No. 

Macb.  No.  or 
Employment 

Do  not  write  here 

Time 

Rate 

Cost 

10 

9 

6  fy/zo 

01 

ZH9 

1 1.1-1 

2> 

Z7* 

«' 

V 

6' 

II 

<? 

MV3.>e> 

OH 

t'f 

IJLl-l 

27' 

/ 

6' 

/I 

9 

ktl/yo 

o9 

8I& 

l3t-3 

17' 

3 

0 

/■in 

'? 

bSyixo 

c3 

b-oiy 

1CS-1 

17' 

/ 

S 

2  So 

<? 

k  if /if 

ol 

7^-9 

1  >/J-i 

17' 

/ 

i~ 

•S.A'o 

s 

loW-T-0 

07 

<7o3 

$  ol-l 

i?1 

/ 

S 

b 

(, 

bSi'/2-0 

01 

°I0F 

go/-  1 

t 

1 

.VI1 

3 

3 

-<t 

/( 

S- 

"Zi7? 

No  Time  allowed  unless 
Reported  on  this  Card  Daily 

P.M. 

A.M. 

Total 

A.M. 

P.M. 

Total 

Night 

or 
Over  I 
Time 

In     1    Out 

In 

Out 

Day 
Time 

In 

Out 

In 

Out 

3  I27  3  12a  % 

1 

!   lM    J 

las 

Form  PS1.     A  Specimen  Time  Card  of  the  Machine  Shop. 


total  of  "  Sales  "  may  (if  desired)  be  built  in  many  different 
ways — all,  perhaps,  equally  useful,  although  not  all  equally 
usual — .e.g,  Customers,  Departments,  Code  Numbers  of 
Goods  sold,  Salesmen's  Numbers,  Districts  (Customers' 
addresses),  Customers'  occupations,  etc. 

The  use  of  the  system  in  the  Steelton  plant  of  the  Penn- 
sylvania Steel  Co.,  according  to  an  article  in  the  American 
Machinist,  showed  three  major  advantages:  1.  Reduced  ex- 
pense of  cost  accounting,  from  a  reduction  in  the  office  account- 
ing force  and  the  almost  entire  elimination  of  night  work. 
2.  Lessening  of  time  in  preparing  the  cost  statements;  before 
installing  the  system  the  average  day  on  which  the  statements 
were  received  by  the  comptroller  was  the  15th  of  the  month; 
the  date  now  ranges  from  the  5th  to  the  7th.  3.  Distribution 
analyses  in  great  detail;  formerly  27  classes  of  product  were 
analyzed  as  regards  cost,  now  130. 

Form  PS1  shows  a  specimen  time  card  (here  reduced  in 
size)  of  the  Machine  Shop,  and  Fig.  13  the  tabulation  of 
the  first  order,  No.  684,120.  The  time  card,  it  will  be  noted, 
has  seven  jobs  on  it  for  one  man  on  one  day,  and  with  the 
tabulating  system  it  is  not  necessary  to  issue  a  separate  job 
ticket  for  each  job. 

Form  PS2  shows  a  requisition  on  the  storekeeper,  ami  Pig. 
14  the  corresponding  card  by  which  all  the  data  concerning 
the  stores  issue  are  tabulated. 


1 

2 

i 
a 

M 

in  No. 

>'e. 

Pieces 

Order  Number 

Sub. 
Order 
No. 

Dent,  ami  Cost 
Group  Charge 

\ 

Miolilnu  No. 

X 

Hours 

Burden 

X 

Lttb.r 

3 

0 

0 

9 

0  • 

•  0 

0   0|0  0  0  • 

•  0 

0   0 

0   0  0 

0  0  0 

0 

•  o 

e 

• 

0   0 

• 

0    0 

0 

4 

l 

1 

1 

•  1 

1  1 

1  1 

1   •  1    1 

1    • 

l  l 

i    1    1 

O   1  • 

• 

1  1 

i 

1 

1    1 

1 

1    1 

1 

• 

5 

<°  6 
o  D 

» 

ft 

2 

2   2 

2   2 

2   2 

2    2*2 

2   2 

2    2 

2    2    2 

2*2 

2 

2    2 

2 

2 

2   2 

2 

2  • 

e 

0 

3 

3 

3 

3   3 

3   3 

3  3 

3  3   3   3 

3   3 

3    3 

3   3  • 

3  3    3 

3 

• 

3 

3 

3  3 

3 

3   3 

3 

7 

4 

4 

4  4 

4   4 

4  4 

•  444 

4   4 

4  • 

4*4 

4   4   4 

4 

4 

A 

•  4 

4 

4   4 

8 

5 

5 

5   5 

5   5 

5    5 

5   5  5    5 

5   5 

5    5 

5   5    5 

5   5    5 

5 

5 

5 

5* 

5 

5    5 

9 

6 

6 

6   6 

6  6 

•  6 

6  6   6   6 

6  6 

6   6 

6   6   6 

6   6   6 

6 

6 

6 

6  6 

6 

6   6 

10 

7 

7 

7    7 

7    7 

7    7 

7   7    7    7 

7    7 

7    7 

7    7  7 

7   7    7 

7 

7 

7 

7    7 

7 

7    7 

11 

8 

3 

8  8 

8    8 

8  0 

8   8   8  8 

8   8 

•  8 

8   8   8 

8   8   8 

8 

8 

3 

8  8 

8 

•   8 

e 

9 

3 

9   9 

9  • 

9   9 

9  9   9  9 

9   9 

9   9 

99   9 

9  9    9 

9 

9 

9 

9   9 

9 

9    9 

/ 

Fio.  13. — Tabulating  Machine  Card  Corresponding  with  Item  1  of  Form  PS1. 


REQUISITION  ON  STOREKEEPER         jf. 

Storekeeper     I X*~ J  8~06           Section        ___                  Date 
Please  deliver  to  Department  98       l£Lh^O 

Order  No. 

ta 

a 

bt 

c 
a 

0. 

11 

3 
O 
J3 

0 

«5 

C 
V 

E 
a. 

a 
a 
H 

z 
< 

5 

>. 

-a 
■a 

s 

Weight  ur 
Quantity 

Description 

For  Office  Use  Only 

Unit 

Price 

Value 

tQynvyjJs'W'Atdl' 

0 

£ 
< 

7§t7t.o-S-~—    /  ^J 

¥ 

33 

a     Z 

a    tj 

*  a 

<"          0 

*  Z 

z  3 

a 

- 
Q 

6 

z 

11 
■p 

0 

Signed 

The  Pennsylvania  Sieel   Co. 

Form  PS2. — Requisition  On  for  Storekeeper. 


138 


BOOKKEEPING  AND  COST  ACCOUNTING 


1 

2 

1    •       2 

•  |l    1  • 

4  6    8 

5  7    9 

X 

Dept. 

Credit 

• 

Class 

0  0   0  •  0 

Qunntltj 

•  ••  0 

Unit 

• 

• 

0  0   0  0 

Money  Value 
•  ••     0 

0   0 

3 

0   0   0  0 

•  •• 

•  0*0 

0 

4 

5 

2  6 

1111 

2  2   2  2 

3  3   3   3 

A    K   1    1    1    1    1 
B    l    2    2   2    2  • 
"33333 

A  K 
B  L 
C     M 

11111 

2  2    2   2  2 

3  3    3   3  3 

111* 

2  2   2    2 

3  3   3    3 

Di    Pi 
Or  Qt 

1111 

2  2   2   2 

3  3   3    3 

1111 

2  2    2  2 

3  3  3   3 

1  1 

2  2 

•  • 

• 
2 
3 

rt  7 
8 
9 

4  4  4  4 

5  5    5  5 

6  6   6  6 

"44444 
E    p    5   5   5   5   5 

"66666 

D  N 
E     P 

F     R 

4  4*44 

5  5    5    5  • 

6  6   6  6    6 

4  4   4  4 

5  5   5   5 

6  6   6   6 

Oi  Q1 
Lt)  Pk 
T    Cd 

4  4   4  4 

5  5    5    5 

6  6   6  6 

4  4  4* 

5  5    5   5 

6  6   6  6 

4  4 

5  5 

6  6 

4 
5 

6 

10 

11 
• 

7  7   7    7 

8  8   8  8 

9  9  9   9 

O     5     j 
a     I     g 

J        U       g 

7  7   7   7 

8  8  8  8 

9  •  9   9 

G  b 
11     T 

'     » 

•  7777 

8  •  8    8  8 

9  9    9  9   9 

7  7   7    7 

8  8  8   8 

9  9    9  9 

LF 
SF 
Vd 

7  7   7    7 

8  8   8  8 

9  9   9    9 

7  7    7   7 

8  8   8  8 

9  9   9   9 

7   7 

3  8 
9   9 

7 
8 
9 

n 


Fig.  14. — Machine  Card  Punched  to  Correspond  to  Form  PS2. 


An  Elapsed-time  Recording  Machine  is  made  by  the  Bishop 
Calculating  Recorder  Co.,  Woolworth  Building,  New  York. 
On  starting  a  job  a  card  is  inserted  in  the  machine,  which 
cuts  a  notch  in  the  edge  of  the  card.  When  the  job  is  finished 
another  notch  is  cut,  and  the  time-controlled  mechanism 
is  so  arranged  that  the  second  notch  always  shows  a  direct 
reading  of  the  elapsed  hours.  The  noon  hour  and  non- 
working  periods  are  automatically  subtracted.  By  placing 
the  notched  card  on  a  "  wageometer,"  a  form  of  wage  table 
made  by  the  company,  a  direct  reading  of  the  amount  due 
the  workman  is  at  once  shown.  A  tabulating  machine  may 
be  used  in  combination  with  the  recorder,  to  sort  the  cards 
automatically  by  man,  job  or  operation  number  and  to  com- 
pile the  amounts. 

The  Periodograph,  made  by  Gisholt  Machine  Co.,  Madi- 
son, Wis.,  consists  of  a  master  clock  and  a  panel  board  kept 
in  one  of  the  offices  of  the  factory  and  a  number  of  time- 
stamping  registers  which  are  placed  in  convenient  locations 
throughout  the  shops.  A  unit  of  time,  usually  a  tenth  of 
an  hour,  is  called  a  period,  and  the  periods  are  counted  con- 
secutively through  the  working  hours  of  the  clay,  week  or 
month  that  the  shop  runs,  non-working  hours  being  auto- 
matically omitted.  A  job  card  is  issued  for  each  job  and  the 
card  is  stamped  with  the  periods  at  which  the  job  is  started 
and  finished.  The  difference  is  the  number  of  periods  the 
man  worked  on  the  job.  The  printing  on  the  cards  varies 
with  the  kind  of  work  done  and  with  the  system  of  shop 
accounting  in  use.  Form  PR  is  a  sample  of  a  card  used  in  a 
machine  shop.  It  shows  that  man  No.  187  started  on  order 
1271X  July  6,  period  412,  but  was  stopped  at  period  443. 
He  started  again  at  period  475  on  the  same  day  and  worked 
continuously  to  period  857  July  10,  when  the  job  was 
completed. 

Another  form  of  card  contains  spaces  for  the  following 
information:  Name  and  number  of  workman;  piece  name  and 
number;  operation  name  and  number;  machine  number;  shop 
order  number;  number  of  pieces;  number  spoiled;  number 
defective;  setting  up  time  allowed;  time  per  piece  allowed; 
time  each;  stopped;  completed;  total  time,  hours;  labor 
cost;  premium;  total  labor  cost;  Inspector's  OK  and  date; 
also  six  spaces  similar  to  those  in  Form  PR  for  the  clock 
stampings  and  the  entry  of  the  period  differences. 


Kfrrji-®** 


OurOrd.No.    Id'j^AC        \B/P^00^ 


/2cW-£/  ^^axu2y 


Bench  Work 
Blacksmith 
Bolt  Cutting 
Boring  Mill 
Cutting  Off 
Drill  Press 
Erecting 
Gear-Cutting 
Grinding 
Helping 
Hydraulic  Press 
Keyseatin;* 
Lathe  Work 

^.Milling 

*> — /Planing 

O  Repairing 
Sawing 
OSlottlng 
Shaping 
O  Tapping 
Testing 
Turret  Lathe 


Change  Card  When  You 
Change  Jobs 

KEEP  CARD  CLEAN 

PUT  IN  RACK  AT 
NOON  AND  NIGHT 


Jul 
Jul 


857 

475 


Jul 
Jul 


443 
412 


t  2  . 


3fZ 


3/ 


Total 
Periods 


¥/J 


Cost 

Labor 


Z2.39 


Shop 
Ex. 


/¥.¥-S 


Stopped 


Tipleje< 


Adamson  Machine  Co. 


Suidincjg  uaqA\ 

juoj j  ap!s  siqx 

dfl  pug  siqx 


Form  PR.     Periodograph  Card. 

The  Monroe  Calculating  Machine  is  an  adding  and  calculating 
machine  the  three  principal  parts  of  which  are  a  standard  flexi- 
ble adding  machine  keyboard  for  setting  up  the  numbers  to  be 
added,  subtracted,  multiplied  or  divided,  a  crank  at  the  right  of 
the  keyboard  for  performing  the  operations,  and  a  carriage  at 
the  top  of  the  machine  holding  the  dials  which  show  the 
results  and  the  proofs  of  the  operations  as  they  are  performed. 

The  main  crank  operates  in  either  direction,  forward  or  clock- 
wise for  addition  and  multiplication,  backward  or  counter- 
clockwise for  subtraction  and  division.  There  are  two  stopping 
places,  after  a  forward  turn  stop  at  the  upper  position,  after  a 
backward  turn  stop  at  the  lower  position.     Automatic  locks 


CLASSIFICATION.     SYMBOLS.     BOOKKEEPING    BY    MACHINERY 


130 


provide  against  operating  errors  which  might  result  if  the  turn 
is  not  ended  at  the  proper  position. 

The  machine  is  made  by  Monroe  Calculating  Machine  Co., 
Woohvorth  Building,  New  York.  The  following  examples  of 
its  operation  are  taken  from  the  "  Instruction  Book." 

Addition.     325+456+222  =  1003. 

Set  the  automatic  release  key  with  the  arrow  pointing  to  the 
right.  See  that  the  dials  are  clear.  Set  325  on  the  keyboard 
at  the  right  and  turn  the  crank  forward  a  full  turn  to  the  upper 
position  registering  325  in  the  lower  dial.  Set  456  on  the  key- 
board and  turn  the  crank  forward  again;  this  adds  456  to  325. 
Set  222  on  the  keyboard,  turn  the  crank  forward  once  more, 
registering  the  result  1003  in  the  lower  dial. 

Subtraction,.     1003  —445  =  558. 

At  the  end  of  the  preceding  example  1003  appears  in  the  lower 
dial;  to  subtract  445  from  it  set  445  on  the  keyboard,  turn  the 
crank  backward  a  turn  and  a  half  to  the  lower  position  and  the 
answer,  558,  appears  in  the  lower  dial. 

Multiplication.     4346  X 122  =  530,212. 

Turn  the  crank  forward  two  turns,  stopping  at  the  upper  posi- 
tion. With  the  carriage  shifting  lever  shift  the  carriage  one 
position  to  the  right  and  make  two  more  turns.  Shift  carriage 
again  and  make  one  turn. 

The  three  successive  steps  register  in  the  rtsult  dials  as  follows: 


1st  Step 


2d  Step 


00000002 
00000008692 


00000022 
000095612 


3d  Step 

00000122! 
00000530212 


Upper  Dial 
Lower  Dial 


Division.     477591-^224=2132;  remainder  23. 

Set  the  dividend  477591  in  the  keyboard  and  by  one  turn  of  the 
crank  forward  register  it  in  the  lower  dial.  Clear  the  upper 
dial  and  the  keyboard,  set  the  divisor,  224,  in  the  keyboard 
and  shift  the  carriage  3  spaces  to  the  right  so  as  to  bring  the 
divisor  224  directly  under  the  477  of  the  dividend,  the  first  posi- 
tion for  dividing. 

Turn  the  crank  backward,  subtracting  224  from  the  first  three 
figures  of  dividend  (477)  as  many  times  as  it  can  be  subtracted, 
that  is  twice.  The  red  2  in  the  upper  dial  indicates  the  first 
figure  of  the  result,  as  shown  under  1st  step  below, 

Shift  the  carriage  one  space  to  the  left,  again  subtract  the  224 
as  many  times  as  possible  from  the  three  figures  of  the  dividend 
that  appear  immediately  above  it,  that  is,  once.  See  2d  step. 
Continue  this  shifting  and  subtracting  until  no  further  sub- 
traction can  be  made. 

The  figures  as  they  show  up  on  the  machine  at  the  end  of  each 
step  are  as  follows: 


1st  Step 


2d  Step 


3d  Step 


Last  Step 


OOOO^OOO 
0000029591 


0000 2 1 00 
000007191 


0000.'/. 30 
000000471 


00002 132 
000000023 


Upper  Dial 
Lower  Dial 


The  instruction  book  shows  numerous  examples  of  the  solu- 
tion of  special  problems  and  of  the  use  of  various  "  short  cuts," 
such  as  multiplication  and  division  of  decimals,  shortening 
multiplications,  taking  off  discounts  and  chain  discounts, 
accumulative  multiplication,  use  of  reciprocals,  prorating, 
figuring  interest,  etc. 

The  Marchant  Calculator,  made  by  Marchant  Calculating 
Machine  Co.,  Oakland,  Cal.,  is  shown  in  Fig.  15.    Instead  of 


the  usual  adding-machine  keyboard  it  has  a  series  of  movable 
disks  with  the  figures  1  to  9  on  I  heir  rims.  The  operations  are 
thus  described  in  the  instruction  book. 

Addition.     245+3275  +84  =  3604. 

Space  carriage  to  unit  column.  Place  245  on  machine  and  turn 
handle  forward  one  stroke;  clear  lexers,  Bel  up  3275  and  repeat 
operation  until  all  the  numbers  have  been  added  into  machine 
when  total  amount  will  be  accumulated  in  the  right   hand  dials. 

Subtraction.    24567-13245  =  11322. 

Space  carriage  to  units  column,  set  21567  on  levers  and  turn 
handle  forward  one  stroke  as  in  addition;  clear  levers  and  set  up 


Fig.  15. — The  Marchant  Calculating  Machine. 

13245,  the  number  to  be  subtracted,  and  give  a  backward  or 
reverse  turn  to  the  handle,  answer  appearing  in  right  hand 
dials. 

Multiplication.     245  X5281  =  1293845. 

Place  5281  on  setting  up  levers — shift  carriage  to  third  column 
(because  the  multiplier  has  three  figures),  and  turn  handle  for- 
ward two  times — shift  carriage  to  second  column  and  turn 
handle  forward  four  times — shift  to  first  column  and  turn  handle 
five  times,  completing  the  operation.  In  order  to  check  the  opera- 
tion see  that  you  have  the  proper  figures  set  on  the  levers  and  the 
proper  numbers  appearing  in  the  proof  dials. 

Division.  There  are  two  systems  of  division  used  on  the 
Marchant.     Division  by  Addition,  and  Division  by  Subtraction. 

Division  by  Addition  is  the  fastest  method  known,  and  although 
more  difficult  to  learn,  is  preferable  to  the  Subtraction  method. 

To  illustrate  the  two  methods  in  as  simple  a  manner  as  possi- 
ble we  will  divide  25  into  100. 

Addition  Method.  Set  the  divisor  25  on  levers,  space  carriage 
to  units  column,  and  turn  handle  of  machine  forward  as  in  addi- 
tion, w:atching  the  Product  dials  for  100,  the  dividend,  to  appear. 
In  four  forward  turns  you  have  100  and  the  quotient  4  is  shown 
in  the  left-hand  dials. 

Subtraction  Method.  Set  the  Dividend  100  on  levers  and  add 
it  into  machine  by  one  forward  turn  of  handle,  clear  the  left- 
hand  dial  of  the  Fig.  1.  Clear  the  levers  and  set  up  Divisor  25, 
then  reverse  the  handle  action.  In  four  backward  turns  the 
Dividend  100  has  been  taken  from  the  lower  dials  and  the  quo- 
tient 4  appears  in  left-hand  dials. 


CHAPTER  XV 
OLD-SCHOOL  COST  ACCOUNTING.     IRONWORKS  BOOKKEEPING 


BOOK-KEEPING  AT  AN  IRON  BLAST  FURNACE  IN 
PENNSYLVANIA 

In  the  year  1872  the  author  was  engaged  as  bookkeeper  at  a 
blast  furnace  in  Northern  New  Jersey.  He  was  first  sent  to 
two  furnaces  at  a  works  near  Easton,  Pa.,  for  three  weeks  to 
study  the  system  of  bookkeeping  then  in  general  use  in  the 
principal  furnaces  of  the  Lehigh  Valley,  so  that  he  could  open 
and  keep  a  set  of  books  on  the  same  system  at  the  New  Jersey 
furnace.  The  system  used  at  the  Pennsylvania  works  was 
old-fashioned  double  entry  with  Cash  Book,  Journal  and 
Ledger,  and  such  auxiliary  books  as  are  needed  at  a  blast 
furnace,  such  as  Furnace  Book,  in  which  were  entered  daily 
the  weights  of  the  coal,  ore  and  limestone  used  by  the  fur- 
nace and  the  product  of  pig  iron  with  its  several  grades, 
Coal  and  Ore  Book,  Shipping  Book,  Labor  Book,  etc.  There 
were  also  Time  Books  for  each  department,  such  as  Furnace, 
Foundry,  Mine,  Farm,  Blacksmith  Shop,  Wheelwright  Shop, 
and  Outside  Labor.  In  the  latter  book  the  kind  of  work 
that  each  man  was  engaged  upon  was  marked  by  a  symbol 
so  that  at  the  end  of  the  month  the  total  outside  labor  could 
be  distributed  to  the  several  accounts  to  which  it  should  be 
charged.  There  was  a  Company  Store  in  which  the  men 
traded,  and  it  kept  a  Store  Ledger  with  an  account  for  each 
man.  At  the  end  of  each  month  the  store  sent  to  the  office 
of  the  furnace  the  charges  against  each  man,  which  were 
entered  on  the  Labor  Book  together  with  charges  for  Rent, 
Doctor,  Cash  Advanced,  etc.,  and  the  balances  due  the  men 
were  paid  a  few  days  after  the  end  of  the  month.  In  the 
Labor  Book  the  men's  names  were  grouped  by  departments, 
and  it  was  ruled  with  columns  for  credits  for  Labor,  charges 
for  Store,  Rent,  Doctor,  etc.,  and  Balance. 

Journa  entries  were  made  from  the  Labor  Book,  charging 
Furnace,  Foundry,  Mine,  etc.,  and  crediting  Labor,  and 
charging  Labor  and  crediting  Store,  Rent,  Doctor,  etc. 

Invoices  for  goods  purchased  were  marked  with  the  accounts 
to  which  they  should  be  charged,  such  as  Store,  Furnace, 
Mine,  etc.,  and  Journal  entries  were  made  from  them,  Store 
Dr.  to  Sundries,  General  Supplies  Dr.  to  Sundries,  etc., 
the  Sundries  being  the  names  of  the  creditors  from  whom  the 
goods  were  purchased.  A  Ledger  account  was  kept  with 
each  creditor  in  the  old-fashioned  way,  which  involved  a 
great  deal  of  labor  for  the  bookkeeper  and  often  caused  con- 
siderable delay  in  getting  a  monthly  trial  balance.  When  the 
monthly  statements  from  creditors  came  in  they  were  checked 
against  the  ledger  entries,  and  the  original  bills  and  statements 
were  then  sent  to  the  New  York  office  to  be  paid,  and  a  long 
journal  entry  was  made,  Sundries  (names  of  creditors)  Dr.  to 
Company,  which  when  posted  balanced  the  creditors'  accounts. 

Each  department,  Furnace,  Mine,  etc.,  was  charged  directly, 


as  above  stated,  with  the  labor  and  with  the  goods  purchased 
belonging  to  it,  as  far  as  possible,  and  also  with  such  supplies, 
General  Charges  (outside  labor)  or  service  of  teams,  and  with 
goods  delivered  to  it  from  the  Store,  Farm,  Blacksmith  Shop 
or  other  department,  as  it  might  have  received  during  the 
month.  The  original  entries  for  these  transfer  accounts  were 
either  Day  Book  entries  or  invoices  or  memorandums  from  the 
several  departments. 

Each  department  also  was  credited  with  the  products  it  had 
shipped  or  delivered  to  other  departments,  at  cost  price  as 
nearly  as  it  could  be  estimated,  thus  Ore  was  charged  and  the 
several  mine  accounts  credited  with  all  the  iron  ore  produced 
by  the  mines,  the  price  per  ton  being  the  total  charges  against 
the  mines  during  the  month  divided  by  the  number  of  tons 
produced.  The  several  depart  ments,  Elacksmith  Shop,  Wheel- 
wright Shop,  Furnace,  Limestone  Quarry,  and  Saddler  Shop, 
not  only  had  operating  accounts  with  these  names,  but  also 
separate  Supply  Accounts  and  Tools  and  Fixtures  Accounts. 

After  all  of  the  various  debits  and  credits  to  all  these 
accounts  had  been  entered  in  the  journal  and  posted  in  the 
ledger,  an  entry  was  made  Pig  Iron  Dr.  to  Sundries,  crediting 
Coal,  Ore  and  Limestone  Accounts  for  the  materials  used,  and 
the  several  operating  accounts  above  named  with  the  labor 
and  supplies  furnished  by  the  departments,  charging  or 
crediting  Pig  Iron  also  with  any  balance  representing  profits 
or  losses  in  these  accounts.  Thus,  the  total  cost  of  pig  iron 
in  any  month  was  the  sum  total  of  all  the  charges  that  had 
been  made  to  Pig  Iron  account  for  the  month  less  any  credits 
that  had  been  made  for  slight  profits  in  the  operating  accounts. 
At  the  end  of  the  year,  when  a  general  inventory  was  taken, 
apparent  profits  and  losses  in  operating  accounts  were  cred- 
ited or  charged  to  Pig  Iron  account  for  December.  At  the 
end  of  1S72,  at  this  Pennsylvania  furnace  Farm  account  was 
credited  and  Lime  account  charged  with  a  profit  of  $791.84  of 
Lime  account,  and  Pig  Iron  then  charged  and  Farm  account 
credited  with  81127.27  loss  on  Farm,  and  Pig  Iron  charged 
and  Store  credited  with  $4163.93  loss  on  Store,  winch  indi- 
cated that  in  that  year,  at  least,  the  workmen  had  not  been 
overcharged  with  the  store  goods  and  farm  products  they 
had  purchased. 

When  pig  iron  was  shipped  on  orders  from  the  company 
it  was  charged  on  the  furnace  books  at  a  round  figure  slightly 
in  excess  of  the  average  cost  per  ton  of  the  pig  iron  remaining 
on  hand  as  it  appeared  on  the  books,  thus,  in  June,  1872,  the 
cost  of  pig  iron  on  the  books  was  821.40  per  ton  and  the  iron 
shipped  during  that  month  was  charged  to  the  company  at 
$22.00.  In  July,  1S73,  the  apparent  cost  was  834.39  per  ton, 
and  the  shipments  were  charged  at  $35.00. 

It  will  be  noted  that  this  method  of  obtaining  the  cost  of 
140 


OLD-SCHOOL  COST  ACCOUNTING.     IRON   WORKS   BOOKKEEPING 


141 


pig  iron,  while  quite  satisfactory  from  a  bookkeeper's  stand- 
point, since  it  enables  the  books  to  be  balanced  each  month, 
and  makes  the  total  cost  of  pig  iron  in  any  month  the  total 
cost  of  running  the  establishment  in  that  month,  is  far  from 
giving  the  true  cost,  for  it  takes  no  account  of  interest  on  the 
investment,  depreciation  from  wear  and  tear  or  from  ob- 
solescence of  the  plant,  nor  of  the  cost  of  relining  the  furnace, 
which  had  to  be  done  about  every  two  years.  In  fact,  the 
two  furnaces  at  this  plant  were  already  obsolete  and  had  to 
be  torn  down  and  replaced  by  a  large  furnace  in  a  few  years. 
In  1872  the  average  price  of  No.  1  Foundry  pig  iron,  at 
Philadelphia,  was  $48  per  tor,  having  risen  from  $33  in  two 
years.  In  1873  the  average  price  had  dropped  to  S43,  and 
it  continued  dropping  until  1S7S,  when  the  average  price  was 
only  817.50.  In  these  five  years  three-quarters  of  all  the 
furnaces  in  the  United  States  became  obsolete  and  had  to  be 
rebuilt  or  abandoned. 

Following  is  a  list  of  the  ledger  accounts  kept  at  the  iron 
works  in  Pennsylvania,  together  with  brief  samples  from  some 
of  the  other  books,  from  notes  which  the  author  has  kept 
since  his  two  visits  to  the  works  in  1S72  and  1873: 

Ledger  Accounts  at  a  Pennsylvania  Blast  Furnace 


Farm    (includes  Horses  and 

Teams). 
General  Repairs. 
General   Charges  Tools  and 

Fixtures. 
General  Charges. 
Labor. 

Limestone  Quarry  Supply. 
Limestone  Quarry. 
Limestone. 
Moulding  Shop. 
Office. 
Ore. 

Total  representative  accts. 

Personal  accts. 


Pig  Iron. 

Rent. 

Saddler  Shop  Tools  and  Fix- 
tures. 

Saddler  Shop  Supply. 

Saddler  Shop. 

Savings  Fund. 

Store. 

Wheelwright  Shop  Tools  and 
Fixtures. 

Wheelwright  Shop  Supply. 

Wheelwright  Shop. 

Wood. 

46 
51 


Total 


97 


Sample  of  Cash  Book 


Blacksmith  Shop  Tools  and 

Fixtures. 
Blacksmith  Shop  Supply. 
Blacksmith  Shop. 
Back-vein  Ore  (and  ten  other 

Ore  Accts.) 
Company  (New  York  Office). 
Cash. 
Coal. 


Coal  Wharf. 

Engine  Room  Tools  and  Fix- 
tures. 

Engine-room  Supply. 

Engine  Room. 

Furnace  Tools  and  Fix- 
tures. 

Furnace  Supply. 

Furnaces. 


Credits 

1872 

Cash 

Dr. 

Ledger 

Labor 
Book 

June  1 

On  band,  balance  from  last  mo. 

757 

15 

3 

H    Frankenfcld,  for  hay 
Blacksmith  Shop,  work  done 

50 

57 

00 

4 

Lime  Aect.     Lime  sold  in  May 
Gen.  Ch.     T.  &  Fix.     Horse  of 

R.  F.  Stover 
Joe  Lewengood.     Acct.  Labor 
Office  Acet.     Washing  Towels 
Savings  Fund.     Wm.  Martin  de- 
posited 

191 
100 

54 
00 

I'O 

00 

50 

1 

00 

FURNACE  BOOK 
Seventy-fourth  Weekly  Report  for  Furnace  No.  1,  Blast  No.  11. 


Week  Ending  Aug.  30,  1872 


Date 

Charges 

Coal 

Ore 

Limestone 

Total 

Total 

Total 

Ores  Used 

August 

each 
Day 

per 
Charge 

per 
Charge 

per 
Charge 

Coal 

Ore 

Limestone 

Re 

marks 

I 

S 

j 

B 

O 

R 

S     24 

29 

24 

21 

10' 2 

696 

609 

304' 

x 

■s 

x 

X 

X 

X 

M  25 

27 

24 

21 

I0'2 

648 

567 

283'- 

N 

's 

x 

X 

'- 

H 

T    26 

27 

24 

21 

101,2 

648 

567 

2832 

Mi 

'« 

x 

X 

X 

\ 

W  27 

28 

24 

21 

\0X 

672 

588 

294 

'. 

's 

X 

X 

X 

N 

Stopped  2  hrs 

fixing  pump. 

T    28 

26 

24 

21 

I0M 

624 

546 

273 

X 

X 

X 

X 

X 

X 

F    29 

22 

24 

21 

I0U 

(      528 
1      221 

462 

231 

a 

x 

X 

X 

X 

% 

Stopped  4  hrs 

repairing 

arch. 

S    30 

25 

24 

21 

I0'2 

600 

525 

262= 

X 

x 

X 

X 

X 

X 

Average  Coal  2-10-3-23 

4637 

3864 

1932 

Average  Ore  2-2-1-21 

Quantity  of  Iron  Made 

Tons 

Cwts. 

Qra. 

Lba 

1 

2  A 

2B 

3 

4 

1 

2A 

2B 

3 

4 

Ore  on  hand 
received 

10,053 
904 

16 

7 

3 

0 
0 

S     24 

6 

7 

used 

193 

4 

0 

0 

M  25 

b\i 

8m 

balance 

10,765 

0 

0 

0 

T    26 

•>Vi 

6'2"> 

7 
7X 

W  27 

Coal  on  hand 

5,049 

II 

0 

0 

T    28 

bX 

6 

received 

1,022 

14 

0 

0 

F    29 

4 

■jm 

used 

231 

17 

0 

0 

S    30 

7m 

4 

2X 

balance 

6,640 

8 

0 

0 

28  H 

13"., 

31  X 

17', 

Lim?stone  used 

96 

12 

0 

0 

Average  Limestone,  1  —1-0-26.          Total  Iron,  60  No.  3,  31  Mott  =91 

ons. 

142 


BOOKKEEPING  AND   COST  ACCOUNTING 


The  weights  of  coal,  ore  and  limestone  charged  into  the 
furnace  were  given  in  hundredweights  (112  pounds)  and  the 
averages  per  gross  ton  of  iron  made  were  recorded  in  the  old 
style  in  tons,  cwts.,  quarters  and  pounds.  It  is  interesting 
ing  to  note  that  the  total  product  for  the  week  was  only  91 
tons.  No.  2  furnace,  working  on  better  ores,  made  in  the 
same  week  108  tons,  with  a  coal  consumption  of  1-1S-0-4; 
ore,  1-15-0-14;  and  limestone,  0-16-3-16.  These  were 
about  the  average  figures  for  a  small  blast  furnace  using 
anthracite  coal  at  that  time.  Ten  years  later  the  small 
furnaces  were  replaced  by  a  large  one,  coke  was  used  instead 
of  anthracite  for  fuel,  fire-brick  ovens  were  substituted  for 
cast-iron  hot-blast  stoves,  the  production  mounted  to  over 
100  tons  per  day,  and  the  fuel  consumption  was  reduced 
to  less  than  a  ton  of  coke  per  ton  of  iron  made.  Comparing 
the  figures  iirthe  above  table  with  the  following  report  of  the 
same  furnace  in  1S57  it  appears  that  no  improvement  in 
practice  had  been  made  in  the  17  years  prior  to  1S73. 

Note  from  an  old  Report  Book  of  the  same  Furnace: 

Report  of  a  Larger  Pennsylvania  Furnace 

Week  ending  Nov.  24,  1871 


Furnace  No.  1,  Blast  No.   5,  84  weeks  ended  April  4, 
1857. 


Average  Coal  per  ton  of  Iron 
Average  Ore  per  ton  of  Iron 
Average  Limestone  per  ton  of  Iron 
Average  Iron  made  per  week 


Tons 

Cwts. 

Qrs. 

1 

18 

0 

2 

2 

3 

0 

16 

1 

96 

3 

' 

I.bs. 

23 

26 

0 

10 


Furnace  No.  2,   Blast  No.  4,  Blowed  out  Feb.  27,  1S.56 
Blowed  in  Aug.  4,  1S56: 

Ran  S3  weeks,  blast  ended  Mar.  12,  1S58. 

Iron  made  first  six  weeks,  93,  84,  124,  109,  111,  116  tons. 


Tons 

Cwts. 

Qrs. 

I.bs. 

Average  Iron  per  week  for  83  weekfi 
Average  Coal  per  ton  of  iron 
Average  Ore  per  ton  of  iron 
Average  Limestone  per  ton  of  iron 

112 
1 

2 
0 

9 
16 

1 
15 

1 

0 
1 
0 

16 

12 

24 

9 

Material 

Consumed 

Product  of  F 

URNACE 

Coal 

Ore 

Limestone 

No.  Ix 

No.  2x 

No.  2 

No.  3 

White 

Aggregate 

289 

426  M 

289 

30 

51  H 

167H 
25 

7 

14  H 

5  i. 

200; 2 ton 

Stock  on  Hand  at  Last  Report 

I12H 

Iron  Shipped 

Ix 

2x 

2 

3 

w 

10 

120 

Glen  I   Wks. 
W.  F.  &  M.  Co 
Barber  &  Co. 

Total  Shipped 

10 

50 
70 

130 

Stock  on  Hand 

30 

53 

72  ;2 

7!-2 

20 

183 

Heading  of  a  Monthly  Pay  List  at 
a  Charcoal  Furnace  in  New  Jersey 
in  1871 

We,  the  subscribers,  do  hereby  ac- 
knowledge to  have  received  the  sums 
prefixed  to  our  names  respectively,  in 
full  payment  of  the  amount  due  us  for 
work  done  between  the  dates  specified, 
and  we,  the  subscribers,  as  witnesses,  do 
hereby  certify  that  we  have  witnessed 
said  payments  where  the  receivers  could 
not  sign  their  own  names. 

Heading  of  Columns:  Name.  Em- 
ployment. Commencement  and  Expira- 
tion of  time  of  Service.  Time  Employed. 
Work  Done.  Rate.  Total  Amount  Paid. 
Paid  in  Goods.  Debit  Balances.  Credit 
Balances.  Paid  in  Cash.  Signatures 
of  Payees.    Witnesses.     Remarks. 


LABOR   BOOK 
Summary  of  Pay  Roll,  June,  1872 


Debits 


Bal.  from 
Last  Month 

Store 

Rent 

Coal 

Wood 

Farm 

Doctor 

General 
Charges 

Total 

Furnace: 

(33  names  here) 

Total 

20  94 

375.91 

68.00 

3  00 

10.14 

12   15 

21   00 

1  .50 

512  64 

General  Charges: 
(33  names) 

Total 

240.93 

44.50 

2.77 

6.89 

3.00 

13.00 

57.93 

369  02 

Credits 

Balances 

Cash 

Balance  to  Next  Month 

Time 

Rate 

Amount 

Bal.  last  Mo. 

Total 

Debit 

Credit 

On  Pay  Day 

Debit 

Credit 

(33  items) 

Total 

2015.98 

10  31 

2026  29 

1.38 

1515.03 

OLD-SCHOOL  COST  ACCOUNTING.    IRON  WORKS  BOOKKEEPING 


143 


BOOKKEEPING   AT  A   NEW   JERSEY   BLAST  FURNACE 

When  the  author  opened  the  books  at  the  New  Jersey 
furnace  he  followed  the  general  system  that  he  had  found  in 
Pennsylvania,  but  made  several  changes  in  order  to  decrease 
the  number  of  accounts  kept  in  the  Ledger.  For  example, 
instead  of  having  separate  accounts  for  Blacksmith  Shop 
Supply,  Blacksmith  Shop  Tools  and  Fixtures,  and  Black- 
smith Shop  (operating  account),  there  was  only  one  Black- 
smith Shop  account,  the  Dr.  Balance  of  which  at  the  begin- 
ning of  the  year  represented  the  inventory  of  its  equipment, 
and  a  General  Supply  account,  which  included  the  supplies 
(other  than  furnace  raw  material)  for  the  furnace  and  for  all 
the  auxiliary  departments.  Later  all  the  personal  accounts 
of  parties  from  whom  goods  were  purchased  and  whose  bills 
were  credited  to  New  York  office  for  payment,  were  taken  out 
of  the  ledger  and  one  general  account,  Accounts  Payable, 
substituted  for  them,  the  bills  being  listed  in  an  Invoice 
Register,  which  was  provided  with  columns  headed  with  the 
names  of  the  accounts  to  which  the  goods  purchased  were  to 
be  charged.  There  were  several  ore  mines  owned  by  the 
Company  about  four  miles  from  the  furnace,  and  a  mines 
store,  in  which  all  local  accounts  relating  to  the  miners  were 
kept,  but  the  furnace  books  were  a  sort  of  clearing  house 
between  the  mines  and  the  New  York  office.  All  the  bills  for 
goods  purchased,  certified  by  the  mines  manager,  were  sent 
to  the  furnace  for  record,  and  in  the  furnace  books  were 
charged  to  Mines  account  and  credited  to  Company,  while 
Company  was  charged  with  the  ore  shipped  to  outside  parties 
at  the  arbitrary  price  of  $5.00  per  ton.  The  mines  had  been 
run,  more  or  less  profitably,  for  over  a  hundred  years,  and  no 
cost  accounts  had  ever  been  kept  at  them.  The  system  of 
charging  New  York  office  with  the  pig  iron  shipped  at  the 
book  cost  for  the  month  in  which  it  was  made,  thus  showing 
neither  profit  nor  loss  on  the  furnace  books,  was  not  adopted 
for  the  ore  shipped,  as  the  books  kept  at  the  mines  store 
gave  no  means  of  estimating  the  cost  at  the  several  mines, 
but  at  the  arbitrary  price  of  So. 00  per  ton  (which  at  that 
date  was  below  the  market  price  for  good  grades  of  New  Jersey 
ores).  The  mines  account  showed  a  profit  of  over  850,000 
in  the  year  1873,  thus  overbalancing  all  the  losses  at  the  fur- 
nace, including  the  cost  of  new  construction,  as  will  be  shown 
below. 

The  method  of  bookkeeping  used  at  the  furnace  is  shown 
by  the  following  journal  entries  and  the  notes  explaining 
them.* 

The  "Summaries  for  Posting"  at  the  top  of  the  second 
column  on  the  next  page  were  not  used  in  the  actual  book- 
keeping, but  they  are  given  here  in  order  to  diminish  the 
number  of  entries  in  the  columns  Personal  Accounts  and 
Horses  and  Teams  in  the  Ledger  on  page  147.  By  means  of 
these  summaries  sixteen  ledger  postings  have  been  reduced 
to  four.  They  have  not  been  used  in  the  Column  Ledger  on 
page  148. 

*  The  furnace  has  been  abandoned  for  many  years,  but  the  mines 
and  stores  are  still  operating.  In  1916  the  author  found  at  the  fur- 
nace store  the  old  books  that  he  kept  43  years  before,  and  copied 
from  the  Journal  the  entries  here  given. 


Journal  Entries 


March  31,  1873 


No. 

1  P.  R.  G.  (Manager) 

To  Company,  for  Cash  brought  from   New 
York 

2  Cash  To  Sundries 

To  Store 

To  Coal 

To  Wood 

To  P.R.G.  (Manager)  Cash  for  Pay  Roll 

To  Horses  and  Teams  (for  use  of  team) 

3  Sundries  To  Cash 
Labor 

Other  accounts,  mostly  personal 

4  Sundries  To  Labor 
Blacksmith  Shop 

Wheelwright  Shop 

Horses  and  Teams 

Office 

General  Charges* 

General  Repairs 

New  Construction 

Furnace 

5  Sundries  To  General  Charges 
Wrood  (cutting  wood) 

Horses  and  Teams 

Furnace 

General  Supplies  (getting  timber  for  W.W. 

Shop) 
Coal  (unloading) 
Ore  (unloading) 
Limestone  (unloading) 
New  Construction 
Mines  (hauling  coal) 

6  Labor  To  Sundries 

(Charges  against  workmen  on  pay  roll) 
To  Store 
To  Coal 
To  Wood 

To  Horses  and  Teams 
To  General  Charges 

7  Sundries  To  Horses  and  Teams 

(Charges  for  hauling  done) 
General  Supplies  (timber  for  W.W.  Shop) 
Furnace  (timber  for  repairing  houses) 
New  Construction 
Mines 
Wood 

8  Sundries  To  Store 

(For  supplies  furnished) 
Furnace 

Horses  and  Teams 

Personal  accounts  (transferred  from  store 
to  office) 

9  Coal  To  Sundries 
To  Horses  and  Teams  (hauling) 

To  Mines  (hauling  by  mine  teams) 

To  Personal  accounts  (outside  teamsters) 

10    Limestone  To  Sundries 

To  Horses  and  Teams  (hauling) 
To  Mines 
To  Personal  accounts 


3000 

00 

3000 

00 

1496 

69 

60 

00 

IS 

69 

14 

00 

1400 

00 

4 

00 

1496 

10 

838 

67 

657 

43 

2381 

68 

99 

63 

44 

50 

283 

70 

233 

34. 

337 

00 

16 

50 

138 

63 

1228 

38 

333 

80 

75 

20 

8 

60 

23 

20 

47 

80 

44 

80 

3 

20 

6 

40 

84 

40 

40 

20 

1441 

95 

1322 

55 

9 

56 

64 

50 

42 

14 

3 

20 

326 

00 

51 

50 

135 

75 

12 

75 

59 

50 

66 

50 

III 

30 

16 

60 

16 

41 

78 

29 

493 

51 

219 

67 

98 

09 

175 

75 

55 

60 

31 

41 

22 
1 

22 
97 

*  General  Charges  covers  outside  labor,  not  charged  directly  to  the  other 
accounts  on  the  pay  roll,  but  distributed  to  them  in  the  neit  entry  according 
to  notes  made  in  the  time  book  of  the  outside  labor  loss. 


144 


BOOKKEEPING  AND  COST  ACCOUNTING 


Journal  Entries — Continued 


No. 

1 1  Pig  Iron  To  Sundries 

Hauling  132  tons  to  R.R. 
To  Horses  and  Teams 
To  Mines 
To  Personal  accounts 

12  Horses  and  Teams 

To  Personal  Accts.  (G.  White,   }■<»  day) 

13  Personal  Accounts 

To  Horses  and  Teams 


14    Sundries 
Mines 
Personal  Accounts 


To  Blacksmith  Shop 


1 5    Personal  Accounts 

To  Wheelwright  Shop 


16    Store 

To  Wood 

To  Horses  and  Teams 


To  Sundries 


I  7  Mines 

To  Coal  (furnace  coal  sent  to  mines) 


To  General  Supplies 


18  Sundries 
Furnace 

Blacksmith  Shop 
New  Construction 


19  Sundries  To  Personal  Accounts 

As  per  Invoice  Register 
Mines 
Store 

General  Supplies 
Coal 

Limestone 
General  Repairs 
New  Construction 

20  Ore.  Spanish  ore  bought  for  furnace  mixture 

To  Company 

21  Sundries  To  Mines 
Company  (for  ore  shipped  on  Company's 

account) 
Ore  (hauled  to  furnace) 
Store  (goods  shipped  to  Furnace  Store 

by  Mines  Store,  Cr.  Mines  account) 
Coal  (unloading  by  men  on  Mines  Payroll) 
General  Supplies  (received  from  mines) 

22  Mines 

To  P.  R.  G.  (Manager)  Cash  for  Mines 
Pay  Roll 

23  Company 

To  Pig  Iron  Shipped  in  March: 

10  Tons  at  139.42  (Feb.  Cost)      1394.20 

Hauling  to  Station  7 .  50 

24  Personal  Accounts 

To  Company  (Invoices  certified  to  Com- 
pany for  payment) 

25  Pig  Iron  To  Sundries 
316  tons  made  in  March  Av.  Cost  $34.  18 

To  Coal 

To  Ore 

To  Limestone 

To  Wood 

To  Office  (includes  Supt's  salary) 

To  Blacksmith  Shop 

To  Wheelwright  Shop 

To  General  Repairs 

To  Furnace  (Labor  251 .58.Sunds.416. 28) 


14 


on 


82 


50 


4 

90 

253 

00 

285 

05 

5 

00 

2 

50 

6,827 

07 

311 

10 

806 

84 

4,501 

10 

124 

00 

877 

28 

28 

58 

1,061 

95 

8,050 

00 

156 

50 

936 

44 

29 

16 

15 

18 

1.703 

58 

1,401 

70 

14,092 

72 

10,799 

23 

80 
5 
13 


2      75 


50 


253 
292 


1,051 
9,187 


1.703 


1,401 


14,092 


3.605 

II 

3.787 

84 

479 

0-1 

24 

00 

236 

34 

76 

88 

14 

00 

908 

16 

1,667 

86 

44 
25 
31 


88 


82 


50 
40 


97 


58 


72 


Summaries  for  Posting 
Entries  8  to   15 
Horses  and  Teams 


Nos. 

Dr. 

Cr. 

8.  6 

16 

41 

42 

14 

12,  7 

0 

88 

326 
219 

00 

9 

17 

29 

67 

10 

31 

41 

II 

80 

44 

13 

14 

82 

714 

48 

Personal  Accounts 


Xos. 

Dr. 

Cr. 

8,     9 

78 

29  . 

175 

75 

13.  10 

14 

82 

1 

97 

14,  II 

1 

25 

13 

31 

15,  12 

1 

50 

88 

95 

86 

191 

91 

The  posting  of  the  above  25  journal  entries  required  entries 
on  only  21  pages  of  the  ledger  containing  representative 
(asset  or  operating)  accounts,  as  compared  with  46  pages 
containing  such  accounts  in  the  books  at  the  Pennsylvania 
works.  In  both  places  the  personal  accounts  might  have 
been  contained  in  two  pages,  Accounts  Receivable  and 
Accounts  Payable,  if  desired. 

All  of  the  posting  might  have  been  done  on  a  single  page  of  a 
Works  Ledger,  such  as  is  shown  on  page  147.  The  page  is  a 
large  sheet  containing  a  column  for  each  account.  It  is 
strictly  double  entry,  the  debit  items  being  entered  in  black 
ink  and  the  credit  items  in  red.  The  balances  shown  are  those 
of  the  single  month  posted,  and  do  not  include  balances 
brought  forward.  These  might  be  entered  below  the  monthly 
balances  in  the  following  manner : 


Company 

P.R.G. 

Cash 

Store 

Office 

Debits 
Credits 

9,451 

18,162 

70 

67 

:<7 
/<• 

07 

3000 

31  US 

00 

68 

-,S 
72 

14 

1496 

1496 

69 

10 

59 
60 

19 

1251 
HOS 

44 
86 

41 
50 

233 

236 

34 

34 

Balance,  Month 
Balance  from  last  Mo. 

8,700 
24,316 

103 
260 

24 

241 
1760 

3 
3 

00 
00 

Balance  Forward 

38,017 

157 

25 

1519 

09 

0 

00 

A  still  better  plan  is  the  use  of  the  Combined  Journal- 
Ledger,  which  dispenses  with  both  the  journal  and  the  old- 
style  ledger.  All  the  journal  entries  have  been  posted  into 
the  single  form  shown  on  page  148.  It  will  be  noticed  that  it 
contains  fewer  figures  than  the  form  on  page  147,  it  avoids  the 
red-ink  entries,  and  there  is  less  trouble  in  making  the  addi- 
tions. All  the  entries  can  be  made  in  it  directly  from  the 
footings  of  the  auxiliary  books  of  original  entry,  except  a 
few  that  may  require  explanations,  and  they  can  be  taken 


OLD-SCHOOL  COST  ACCOUNTING.    IRON   WORKS   BOOKKEEPING 


11  r. 


from  a  Blotter  or  Day  Book,  kept  in  journal  form,  for  the 
record  of  those  special  transactions  that  are  not  included  in 
the  regular  monthly  or  routine  entries  in  the  other  books. 

Four  additional  lines  should  be  added  to  this  Journal- 
Ledger,  giving  the  Dr.  and  Cr.  Balances  brought  forward 
from  the  preceding  month  and  the  new  balances  carried 
forward  to  the  next  month. 

A  carbon,  or  a  photostat,  copy  of  this  Journal-Ledger  may 
be  used  for  a  monthly  statement  to  be  sent  to  the  Company's 
office.  It  forms  both  a  trial  balance  and  a  record  of  the 
business  for  the  month. 

The  use  of  the  condensed  form  of  monthly  ledger  shown  on 
page  14S  would  make  unnecessary  many  of  the  longer  journal 
entries.  For  example,  No.  4,  "  Sundries  to  Labor  "  consists 
of  the  footings  of  the  columns  of  the  Labor  Book,  and  these 
could  be  posted  directly  into  the  ledger  without  going  into 
the  Journal.  Entry  No.  5  comes  from  a  summary  of  small 
entries  in  a  Day  Book  called  General  Charges,  and  as  this 
summary  is  entered  in  this  book  in  permanent  form  at  the 
end  of  the  month,  it  might  be  posted  directly  into  the  ledger. 
Entry  No.  19  is  but  a  transcription  of  the  footings  of  the 
columns  of  the  Invoice  Register,  and  there  is  no  need  of  put- 
ting it  in  the  journal. 

The  entry  "  Pig  Iron  to  Sundries  "  for  the  preceding  month 
is  something  of  a  curiosity.  Here  it  is  except  as  to  the  details 
of  the  charges  for  different  kinds  of  ore  which  ranged  from 
$3.40  to  $9.63  per  ton. 

Feb.  28,  1873. 


Fig  Iron                                                      To  Sundries 

For  Cost  of  making  Pig  Iron  in  February  in- 

cluding filling  of  furnace  and  all  expenses 

since  Jan.  27,  58 H  tons  at  $139.42 

8190 

•63 

To  Coal 

3886 

97 

Ore 

2638 

37 

Limestone 

322 

07 

Furnace 

1557 

14 

Office 

242 

49 

Wood 

90 

00 

General  Repairs 

53 

59 

The  corresponding  entry  for  March  was  for  316    tons  at  34.18       $10,799.23 
The  corresponding  entry  for  April  was  for  241  H  tons  at  36.87  8.902.86 

Total  for  3  months  616J4  tons  at  $45.26  $27,892.72 

The  average  price  of  No.  1  Foundry  Pig  Iron,  at  Phila- 
delphia, that  year  was  about  $43.  The  Furnace  went 
out  of  blast  at  the  end  of  April  and  it  made  no  more  iron 
for  nine  years,  or  until  the  "  boom  "  year  1882. 

In  Journal  entry  No.  23  there  is  a  charge  to  the  Com- 
pany for  10  tons  of  iron  shipped  at  $139.42  per  ton,  plus  a 
charge  of  S7.50  for  hauling  the  iron  to  the  railroad  and  load- 
ing it  on  a  car.  In  April,  30  tons  more  was  shipped  and 
charged  at  the  same  price  per  ton.  In  May  the  charge  was 
as  follows: 


I85i  tons  (Feb.)  at  $139.42 
91  y2  tons  (Mar.)  at  34. 18 
Hauling 


This  is  a  very  satisfactory  system  of  bookkeeping  for  the 
furnace,  for  no  matter  how  high  the  cost  of  making  pig  iron 
it  all  gets  charged  to  the  Company  when  the  iron  is  shipped, 
so  that  the  books  are  balanced  without  the  trouble  of  com- 
puting and  entering  profits  or  lossrs. 

On  the  Company's  books  at  the  New  York  office,  however, 
there  would  be  a  different  story.  Pig  Iron  account  would  be 
charged  and  the  New  Jersey  furnace  would  be  credited  with 
each  shipment  of  iron  at  the  apparent  cost  of  the  iron  on  the 
furnace  books  in  the  month  in  which  it  was  made,  plus  the 
cost  of  hauling  to  the  railroad  and  loading  on  cars.  Pig 
Iron  would  be  credited  with  the  amount  received  from  tin- 
sale  of  each  lot  shipped. 

Assuming  that  all  the  iron  made  at  the  New  Jersey  furnace 
had  been  shipped  before  June  30,  and  that  a  single  entry  was 
made  for  it  at  that  date  before  closing  the  books,  and  that 
at  the  same  time  an  entry  was  made  charging  all  the  iron 
made  at  the  two  furnaces  in  Pennsylvania  during  the  six 
months,  whether  it  was  shipped  or  ordered  stored  for  Com- 
pany's account,  at  the  book  cost  at  these  furnaces,  the  Dr. 
side  of  Pig  Iron  account  would  appear  as  follows  (omitting 
the  charges  for  hauling): 

Pig  Iron 


To  Penna.  Furnaces 

1873 

Jan. 

745  >2  tons  at 

30 

06 

22,529 

97 

Feb. 

705 

27 

77 

19,577 

85 

Mar. 

841  Yt 

27 

97 

23,536 

75 

Apr. 

861 

28 

20 

24,280 

20 

May 

903  >  a 

35 

31 

v  31,902 

58 

June 

822 

37 
>0 

28 

18 

30,662 

80 

152,490 

15 

4879                  av. 

To  N. 

f.  Furn 

ice 

Feb. 

58  Yi  tons  at 

139 

42 

8,190 

63 

Mar. 

316 

34 

18 

10,799 

23 

Apr. 

241  H 

36 
45 

87 
26 

8,902 

86 

27,892 

72 

616^ 

180.382 

87 

$2613 

83 

3127 

47 

86 

69 

5827 

1 

(The  figures  for  tons  and  cost  per  ton  were  taken  from  the 
furnace  books.) 

What  would  appear  on  the  credit  side  of  the  account  would 
depend  upon  the  dates  at  which  the  iron  was  sold.  If  the 
whole  5495J  tons  had  been  sold  at  the  average  price  of  No.  1 
Foundry  at  Philadelphia,  in  1873,  $43,  it  would  have  brought 
$236,295.75,  an  apparent  profit  of  $55,912.88,  less  the  cost 
of  selling,  bad  debts,  etc.  (there  were  many  bankruptcies  in 
1873).  But  if  it  had  been  stored  for  a  year  or  more  (as  was 
done  by  many  furnaces  in  the  Lehigh  Valley  in  1873-4),  and 
sold  at  the  average  price  of  1874,  $30,  it  would  have  brought 
only  $164,857.50,  showing  a  loss  of  $15,525.37,  besides  cost 
of  storage  and  loss  of  interest. 

The  apparent  cost  of  616j  tons  of  pig  iron  at  the  New  Jersey 
furnace,  $45.26  per  ton,  was  far  below  the  actual  cost  (on 
the  basis  of  charging  all  the  expenses  of  the  plant  to  pig  iron), 
for  the  following  items  appear  on  the  books  charged  respec- 
tively to  New  Construction  No.  1  Furnace  and  Repairs  of 
No.  1  Furnace,  that  were  later  charged  to  Company. 


14G 


BOOKKEEPING  AND   COST  ACCOUNTING 


Expenditure  on  No.  1  Furnace  from  Sept  1  ,/72  to  Jan.  27/73 

(Converting  a  charcoal  furnace  into  an  anthracite  furnace) 

18,137 

26 

Cost  of  repairing  No.   1   Furnace,  including  all  expenses  at 

Furnace  from  Apr.  27,  1873,  to  Dec.  31,  1874 

7,436 

51 

There  were  also  entries  for  the  cost  of  building  No.  2  Furnace 

and  its  appurtenances  Mar.  31,  1873,  to  Nov.  30,  1874, 

totaling 

32,618 

82 

Total 

58,192 

69 

All  of  which  was  a  dead  loss.  The  work  of  building  No.  2 
furnace  was  abandoned  when  the  furnace  was  half  finished  in 
1874,  and  No.  1  furnace  after  being  repaired  was  not  put  in 
blast  until  18S2,  when,  after  another  disastrous  campaign, 
it  was  finally  abandoned. 

The  system  of  bookkeeping  used  at  the  Pennsylvania  fur- 
nace was  a  fine  example  of  double-entry  carried  to  an  extreme. 
Everything  was  journalized  and  posted  and  balanced  monthly, 
and  monthly  costs  of  operation  were  obtained  for  the  two 
furnaces  (taken  together,  no  attempt  being  made  to  get 
separate  costs)  for  the  blacksmith  shop,  wheelwright  shop, 
moulding  shop,  and  for  each  separate  mine,  but  the  costs 
obtained  were  merely  accountants'  costs;  they  gave  no  in- 
formation to  the  management  as  to  the  causes  of  variations 
in  costs  nor  anything  as  to  how  the  costs  of  any  item  might 
be  reduced.  The  "  costs  were  tied  to  the  general  books  " 
to  the  limit;  "  the  costs  were  proved  by  the  books,"  but 
they  were  of  no  practical  value. 

The  chief  thing  lacking  in  the  system  is  a  statistical  state- 
ment of  comparative  monthly  costs,  which  might  be  made  on  a 
single  sheet  lasting  a  year.  The  following  is  such  a  statement 
for  the  three  months'  campaign  of  the  New  Jersey  furnace: 

Cost  of  Pig  Iron   1873 


Feb.* 

Mar. 

Apr. 

Pig  Iron  Made — tons 

58  s4 

316 

24  \i 

Coal  per  ton  of  iron,  tons 

9  22 

2.02 

1    97 

Ore  per  ton  of  iron,  tons 

7   19 

2.27 

2.33 

Limestone  per  ton  of  iron,  tons 

1    82 

0.50 

0.65 

Book  Cost  per  ton  of  iron: 

Coal 

55.94 

11.41 

12.16 

Ore 

44  97 

11.99 

13.93 

Limestone 

5   50 

1.52 

1.94 

Labor,  including  Office 

20.22 

4  71 

6.20 

Supplies  and  Sundries 

4    13 

0.68 

0.66 

Repairs 

8.72 

3.87 

1.98 

Total 

139.42 

34.18 

36.87 

Cost  of  Raw  Material,  per  ton: 

Coal 

6.07 

5  65 

5  33 

Ore 

6.24 

5.28 

5.97 

Limestone 

3.01 

3.01 

2.66 

Total  Book  Cost  per  month 

8190.63 

10,799.23 

8902  86 

Normal  Cost  T 

1938  75 

10,428.00 

7769.50 

Furnace  Operating  Loss 

6251.88 

371 .23 

1133.36 

Furnace  Operating  Loss,  per  ton 

106  42 

1.  18 

3.87 

The  above  statement  illustrates  the  fallacy  of  "  charging 
to  the  product  all  the  factory  costs  of  the  month,"  which  is 
advocated  by  many  accountants,  and  letting  the  cost  remain 
on  the  books  as  an  inventory  value,  crediting  this  value  to 
Pig  Iron  account  and  billing  the  iron  to  the  Company  at 
the  same  value  when  it  is  shipped.  As  was  shown  above  the 
shipments  in  April  were  billed  part  at  $139.42,  the  February 
book  cost,  and  partly  at  $34. IS,  the  March  cost.  If  any  of  the 
April  iron  had  been  shipped  in  April  it  would  have  been  billed 
at  $36.87. 

A  far  better  method  of  treating  the  pig  iron  account  is 
after  charging  it  as  above  with  all  the  operating  costs  for  the 
month,  to  credit  it  and  charge  Profit  and  Loss  with  the  dif- 
ference between  the  operating  cost  and  the  "  normal  cost," 
which  is  the  estimated  cost  with  the  prevailing  prices  of 
materials  and  fairly  good  furnace  practice  for  a  furnace  of 
that  size.  The  iron  will  be  inventoried  at  this  normal  cost 
until  it  is  shipped,  and  when  it  is  shipped  will  be  billed  to  the 
Company  at  the  same  cost. 

Another  bookkeeping  device  for  figuring  costs  at  a 
blast  furnace  is  to  charge  furnace  operating  account  with 
the  monthly  cost  for  materials,  labor,  supplies  and  regular 
repairs,  together  with  a  fixed  sum,  say  50  cents  per  ton 
of  iron  made,  which  is  credited  to  Eeserve  for  Extraor- 
dinary Repairs,  which  is  allowed  to  accumulate  until  the 
furnace  is  blown  out,  when  'it  is  drawn  upon  to  pay  for 
the  cost  of  relining  and  other  repairs.  At  the  end  of 
the  month  Pig  Iron  is  charged  and  Furnace  Operating 
credited  with  the  pig  irori  made  at  the  estimated  normal 
or  inventory  price.  The  balance  of  the  operating  account 
will  represent  a  profit  or  loss  which  can  either  be  trans- 
ferred to  Company  at  the  end  of  the  month  or  carried 
to  Profit  and  Loss  account  on  the  furnace  books  until  the 
end  of  the  fiscal  period,  when  the  latter  account  is  closed 
into  the  Company  account. 

An  itemized  statistical  statement,  like  the  one  shown 
above,  is  one  of  the  most  important  parts  of  blast-furnace 
cost  accounting,  for  it  gives  the  information  that  the  owners 
or  directors  most  need.  The  items  under  Book  Cost  should 
include  the  total  expenditure  in  dollars  as  well  as  the  cost 
per  ton,  and  they  should  include  also  Reserve  for  Extraordi- 
nary Repairs  and  Depreciation,  Administration  Expenses 
(relating  to  the  furnace  and  not  to  the  selling  depart- 
ment) and  Interest  on  Investment.  The  statistics  also- 
should  be  charted,  as  shown  on  page  106,  entries  being  made 
monthly. 

the  beginning.  Stopped  filling  April  27,  2  p.m.  Stopped  blast  I  p.m.,  28th. 
Length  of  blast  13  weeks. 

Weekly  product:  23,  I6#.  I,  21  X.  56 \i,  72  H.  °6,  77 34,  54 %,  58 H.  77 H. 
64 M,  6>2.  Total  614',  tons.  Grades  463  H  No.  3,  83  %  mottled,  I9}i 
white,  49  '4  silver  gray. 

t  Normal  or  Inventory  cost,  based  on  average  costs  (at  that  date)  of 
material  and  average  good  practice. 


*  Remarks.  The  February  costs  included  filling  the  furnace  and  all  costs 
of  the  plant  from  Jan.  27.  Furnace  lighted  10  a.m.  Jan.  30;  Blast  put  on 
4.30  p.m.     First  cinder  Jan.  31,6  p.m.     The  furnace  worked  very  badly  from 


2      tons  Coal             at  $5 

75 

$11.50 

2 . 2  tons  Ore                at    5 

50 

12.10 

0.8  tons  Limestone  at    3 

00 

2.40 

Labor 

4.50 

Supplies,  Repairs,  etc. 

2.50 

$33.00 


OLD-SCHOOL  COST  ACCOUNTING.    IRON  WORKS  BOOKKEEPING 

Iron  Works  Ledger,  March,  1873 


147 


Journal  Entry 

Com- 

P.R.G. 

Cash 

Store 

Labor 

Personal 

General 

General 

Office 

Horses 

Black- 

No. 

pany 

Accounts 

Charges 

Repairs 

and 
Teams 

smith 
Shop 

1 

3000 

00 

3000 

00 

2 

1400 

00 

1496 

69 

60 

00 

4 

00 

3 

1496 

10 

838 

67 

657 

43 

4 

2SS1 

68 

337 

00 

16 

50 

233 

34 

283 

70 

99 

63 

5 

1322 

56 

383 

80 

8 

60 

6 

1441 

95 

3 

20 

8 

111 

SO 

95 

86 

714 

48 

14,  15 

191 

91 

17 

29 

16 

4 

90 

3 

40 

X 

75 

18 

5 

00 

19 

311 

10 

13,475 

97 

877 

28 

20 

1,061 

OB 

21 

8,050 

00 

936 

44 

22 

170S 

B8 

23 

1,401 

70 

24 

14,090 

72 

14,090 

72 

25 

90S 

16 

2S6 

34 

76 

88 
63 
63 

Total  Debits 

9,451 

70 

3000 

00 

1496 

69 

1252 

44 

2280 

62 

14,844 

01 

337 

00 

893 

78 

233 

34 

309 

59 

104 

Total  Credits 

18,152 

67 

3103 

58 

1496 

10 

1493 

85 

2381 

68 

13,667 

88 

337 

00 

908 

16 

236 

34 

721 

88 

79 



Journal  Entry 

Wheel- 

General 

Wood 

Coa 

Ore 

Limestone 

Furnace 

Mines 

Pig  Iron 

New 

No. 

wright 
Shop 

Supplies 

Con- 
struction 

2 

14 

00 

18 

69 

4 

44 

50 

1228 

38 

138 

63 

5 

47 

80 

75 

20 

44 

80 

3 

20 

6 

40 

23 

20 

40 

20 

84 

40 

6 

64 

B0 

9 

56 

7 

51 

50 

66 

50 

135 

75 

59 

50 

12 

75 

8,  9 

493 

51 

16 

60 

98 

09 

10 

55 

60 

22 

22 

II 

6 

25 

99 

00 

14,  15,  16 

1 

60 

/ 

B0 

1 

50 

17 

253 

00 

253 

00 

18 

292 

SB 

285 

05 

2 

50 

19 

806 

84 

4501 

10 

124 

00 

6827 

07 

28 

58 

20 

1061 

95 

21 

15 

18 

29 

16 

156 

50 

9187 

28 

22 

1703 

58 

23 

1,401 

70 

25 

14 

00 

24 

00 

360B 

/; 

S7S7 

84 

479 

04 

1667 

86 

10,799 

23 

Total  Debits 

24 

50 

921 

32 

141 

70 

5068 

57 

1221 

65 

186 

00 

1688 

98 

8884 

85 

10,898 

23 

266 

86 

Total  Credits 

15 

50 

292 

55 

104 

00 

3886 

36 

3787 

84 

479 

04 

1667 

86 

9312 

84 

1,401 

70 

148 


BOOKKEEPING  AND   COST  ACCOUNTING 


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3.000 

1.496 

1.252 

2.280 

14.844 

337 

893 

233 

309 

104 

44 

..  921 

141 

5.068 
1.221 

186 

1.688 

8,884 

10.898 

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OLD-SCHOOL  COST  ACCOUNTING.     IRON  WORKS   BOOKKKKl'INC 


149 


COST  OF  IRON  WHEN  BY-PRODUCTS  ARE  MADE 

Iron  works  accounts  tend  to  become  complicated  when 
valuable  by-products  are  made  in  addition  to  the  principal 
product.  For  example,  a  blast  furnace  makes  slag,  some  of 
which  may  be  sold  as  a  raw  material  for  making  cement.  It 
also  makes  a  vast  quantity  of  gas,  part  of  which  is  used  for 
furnishing  and  heating  the  blast  for  the  furnace  itself,  but 
another  part  may  be  sold  to  an  Electric  Co.  to  be  used  in 
gas  engines  to  make  electric  current.  There  may  be  coke 
ovens  run  in  connection  with  the  furnace,  making  more  coke 
than  the  furnace  can  use,  and  the  surplus  is  sold  at  the  mar- 
ket price.  The  Electric  Co.  may  also  purchase  some  of  the 
gas  from  the  coke  ovens,  and  the  tar  and  gas  washings  may  be 
sold  to  a  Chemical  Co.,  at  a  price  to  be  agreed  upon,  for  the 
manufacture  of  by-product  chemicals.  The  Iron  Co.  itself 
may  carry  on  a  cement  works,  a  by-product  plant,  and  an 
electric  plant,  as  branches  of  its  business.  Under  these  cir- 
cumstances it  becomes  a  problem  how  to  find  the  c5st  of  pig 
iron  and  of  the  other  products. 

Example.  A  modern  blast  furnace  with  coke  ovens  adjoin- 
ing makes  10,000  tons  of  pig  iron  in  a  month.  The  coke 
ovens  make  20,000  tons  of  coke  in  the  same  month,  of  which 
half  is  used  by  the  blast  furnace  and  half  is  sold.  The  follow- 
ing are  the  statistics  of  cost,  the  coke  being  charged  to  the 
furnace  at  the  market  price,  S3  per  ton : 


Blast  Furnace: 

20,000  tons  Ore  ©  $5 
1 0.000  tons  Coke  @  $3 
5,000  tons  Limestone  ©  $1 
Labor,  $1  per  ton  of  Iron 
Supplies,  50^  per  ton  of  Iron 
Current  repairs,  30^  per  ton  of  Iron 
Reserve  for  Ex.  repairs 
Interest  on  Investment 


Average  Cost  $16.20  per  ton. 
Credits: 

Furnace  Gas  sold 
Slag  sold 


Dr.  Balance 
Inventory:    10,000  tons  Pig  Iron 

Apparent  profit  on  Furnace 

Coke  Ovens: 

30,000  tons  Coal  ©  $1.40 
Labor,  20^  per  ton  Coal 
Supplies,  Repairs,  Interest,  etc. 


20,000  tons  Coke  make  average  cost  per  ton  $2.70 

Credits: 

10,000  tons  Coke  to  Furnace  ©  $3 

Gas  sold 

Tar  and  Washings  sold 


Dr.  Balance 
Inventory:    10,000  tons  Coke  @  $270 

Apparent  Profit  on  Coke  Ovens 


$100,000 
30,000 
5.000 
10.000 
5,000 
3,000 
5,000 
4,000 

$162,000 


$10,000 
1,000 

11,000 
151,000 
162,000 

11,000 


$42,000 
6,000 
6,000 

$54,000 


$30,000 
3.000 
3,000 

$36,000 

$18,000 
$27,000 

$9,000 


coke  ovens  be  deducted  from  the  gross  cost  of  coke,  $54,000, 
making  the  cost  of  coke  per  ton  $2.40  instead  of  $2.70,  and 
the  inventory  of  coke  on  hand  made  $24,000  instead  of  $27,000? 

2.  Should  not  the  blast  furnace  be  charged  with  coke  at 
the  net  cost  price  $2.40  per  ton,  instead  of  $3,  the  market 
price,  making  the  cost  of  pig  iron  $15.60  per  ton  instead  of 
$16.20? 

3.  Should  not  the  pig  iron  cost  be  further  reduced  by  cred- 
iting the  furnace  with  $11,000  for  by-products,  making  the 
net  cost  of  pig  iron  and  the  inventory  value  per  ton  $14.50? 

In  the  simplest  form  of  accounting  no  attempt  would  be 
made  to  separate  the  blast  furnace  from  the  coke  ovens  in  the 
general  ledger  and  to  determine  unit  costs  of  product  from 
the  ledger,  but  all  charges  and  credits  would  be  made  to  a 
single  Manufacturing  or  Operating  Account  as  below: 


Dr. 


Operating  Account 


Ore,  20,000  tons  ©  $5 
Coal,  30,000  tons  ©  $1.40 
Limestone,  5,000  tons  @  $1 
Labor 

Supplies,  Repairs  and  Reserves 
Interest 


$100,000 
42,000 
5,000 
16,000 
19,000 
4,000 


$186,000 


Furnace  Gas 
Furnace  Slag 
Oven  Gas 
Oven  Tar,  etc. 


Balance 


$10,000 
1,000 
3.000 
3,000 


I  7.000 
169,000 


[186,000 


Inventory  10,000  tons  Coke  @$  2.40 
10,000  Ions  Iron  ©    $14.50 


$24,000 
145.000 


169,000 


Several  questions  arise  in  connection  with  this  statement. 
1.  Should  not  the  credits  of  $6000  for  by-products  of  the 


Thus  showing  no  profit,  all  the  credits  for  by-products 
going  to  reduce  the  cost  and  the  inventory  value  of  the  coke 
and  the  iron.  Or,  if  the  inventory  were  made  at  the  gross 
costs  given  in  the  first  table  it  would  appear  as  follows: 

10,000  tons  Coke  ©$2.70  $27,000 

10,000  tons  Iron    ©16.20  162,000 

Inventory  189,000 

Less  Balance  of  Account  169,000 

Profit,  $1 1,000  on  Furnace,  $9,000  on  Ovens  $20,000 

If  the  above  simple  method  of  keeping  the  accounts  were 
adopted  the  costs  would  be  kept  in  a  separate  book,  and  in 
this  book  tne  cost-accountant  might  figure  costs  and  inven- 
tory values  by  two  or  three  different  methods,  or  on  two  or 
three  different  assumptions  as  to  the  method  of  treating  the 
by-products  of  the  accounts,  for  the  information  of  the  man- 
agement. The  directors  could  then  choose  which  of  the 
methods  would  be  the  best  for  obtaining  unit  costs  to  be  used 
as  a  basis  for  inventories,  for  fixing  minimum  selling  prices 
or  for  determining  profits  available  for  declaring  dividends. 

There  are  several  advantages  in  this  method  of  separating 
the  cost  system  from  the  accounting  system.  By  having  a 
single  operating  account  all  the  actual  expenditures  and 
actual  receipts  may  be  posted  to  it  from  the  Invoice  Book, 
Sales  Book,  Pay  Roll  Book,  etc.,  immediately  after  the  end  of 
the  month  and  a  balance  sheet  taken  which  shows  the  general 
course  of  the  business.  The  balancing  of  the  general  books 
does  not  have  to  be  postponed  until  estimates  of  costs  are 
made,  and  no  question  arises  as  to  whether  the  furnace  shall 


150 


BOOKKEEPING  AND   COST  ACCOUNTING 


be  charged  with  the  coke  at  the  market  price,  $3,  or  at  S2.70, 
or  at  $2.40,  or  whether  the  furnace  should  be  credited  with 
the  receipts  from  the  sale  of  by-products,  so  that  the  book 
cost  of  pig  iron  may  thereby  be  lowered.  All  these  trouble- 
some questions  may  be  avoided  by  the  general  bookkeeper 
and  turned  over  to  the  cost  accountant  and  to  the  manage- 
ment. 

When  the  market  value  of  a  by-product  is  a  considerable 
fraction  of  the  value  of  the  whole  product  it  becomes  impos- 
sible to  determine  what  is  the  real  cost  of  either  the  principal 
product  or  the  by-product,  and  the  only  way  to  fix  the  inven- 
tory value  of  either  product  is  to  take  the  market  price  less 
the  estimated  cost  of  selling,  including  the  cost  of  storage, 
transportation  and  interest  charges.  Thus,  if  a  certain  mine 
produced  an  ore  containing,  at  market  values,  $20  worth  of 
gold,  $10  worth  of  silver  and  $15  worth  of  copper  per  ton  of 
ore,  and  the  total  cost  for  mining,  concentration,  smelting, 
refining,  transportation,  management  and  selling  was  $35 
per  ton,  the  profit  would  be  $10  per  ton  of  ore,  but  the  cost 
per  ounce  of  gold  or  silver,  or  per  pound  of  copper,  could  not  be 
stated. 

Cost  Keeping  in  a  Rolling  Mill 

Puddle  Mill  No.  I,  Etna  Iron  Works. 
Pay  Roll  for  Week  ending  Saturday  191 


Fur- 

Name 

Muck  Bar  Made  Pounds 

nace 
No. 

M 

T 

W 

T 

F 

S 

Total 

Rate 

Wages 

1 

2 

J.  Weish 
T.  Jones 
R.  Morgan 
W.  Reese 

Furnaces 
Total 

20 

Total  tons  Labor  per  ton  $ 

Material,  tons  pig  iron  @$ 

Material,  tons  scrap  @ 

Material,  tons  pig  scrap  @ 

Material,  tons  pig  ore  @ 

Material,  tons  pig  cinder  @ 

Fuel  @ 

Repairs  *  Material  (Items) 
Repairs  Labor  (Items) 
Charge  to  this  week's  product  for  repairs 
Foreman's  Wages 
Other  labor 
Other  charges,  burden  (details)  per  ton 

Total 
Less  value  of  cinder  made 

Total  cost  of  muck  bar 

Total  cost  per  gross  ton 

The  cost  of  refined  bar  is  figured  in  the  same  way.  The 
raw  material  is  muck  bar,  charged  at  the  puddle-mill  recorded 
cost,  and  scrap,  either  purchased,  drawn  from  other  mills,  or 
sheared  crop  ends  from  the  bars  made.  All  this  scrap  is 
usually  charged  at  the   market  selling  price  in  carload  lots. 

*  This  charge  may  be  an  estimate  based  upon  previous  statistics.  A 
memorandum  account  of  repair  is  kept  for  the  actual  cost  of  repairs  each 
week,  which  will  be  totaled  as  a  charge  to  Repairs  and  the  account  will  be 
credited  each  week  with  the  weekly  charge  to  Muck  Bar. 


The  skilled  labor  is  commonly  paid  by  the  ton,  and  common 
labor  by  the  day.  Repairs  and  other  burden  are  treated  as 
in  the  puddle  mill  and  a  weekly  statement  is  made  showing 
the  totals  of  raw  material,  labor  and  burden,  bars  and  scrap 
produced,  and  cost  per  ton  of  refined  bar  made. 

MACHINE-HOUR  RATES  IN  A  STEEL  WORKS 

Mr.  Gershom  Smith  in  an  article  in  Engineering  Magazine,  June, 
1909,  thus  described  the  method  of  establishing  the  machine- 
hour  rates  which  he  used  in  the  works  of  the  Pennsylvania  Steel 
Co.,  Steelton,  Pa.,  about  seven  years  earlier: 

"  The  first  step  was  to  ascertain  the  floor  space  of  the  shop 
under  consideration,  and  to  divide  this  space  into  the  sum  of  the 
upkeep  of  land,  depreciation  of  the  building,  the  power  plant 
and  power-transmission  machinery,  also  general  machinery  for 
common  use  throughout  the  shop,  such  as  overhead  cranes,  etc., 
also  expense  of  a  general  nature,  such  as  heat,  light,  superin- 
tendence, non-producing  labor  (that  is,  laborers),  current  minor 
repairs,  etc.,  the  quotient  being  the  yearly  value  of  floor  space 
per  square  foot. 

The  next  step  was  to  ascertain  the  square  feet  of  floor  space 
occupied  by  each  machine,  and  to  apportion  to  this  machine  its 
pro  rata  share  of  the  aforementioned  items,  on  the  basis  of  its 
square  feet  of  floor  space. 

In  the  case  of  a  building  of  several  floors,  the  floor  space  on 
each  would  have  to  be  considered,  and  it  is  probable  that  the 
engineers  would  decide  that  certain  floors  being  more  valuable 
in  the  matter  of  location  than  others  should  stand  a  greater 
share  of  the  depreciation  of  the  building. 

Some  machines  require  more  clear  space  around  them  than 
others  for  the  handling  of  work.  Any  floor  space  not  occupied 
by  machines  or  in  operating  them  should  be  charged  pro  rata 
to  all  machines.  In  one  shop  the  total  square  feet  represented 
was  4278,  the  machines  actually  occupied  8333  sq.ft.,  and  the 
working  space  allowed  was  833|  sq.ft.  additional,  leaving  2611 
sq.ft.  for  aisles,  storage,  etc.  This  2611  sq.ft.  was  pro  rated 
to  the  1667  sq.ft.  apportioned  to  the  machines  so  that  each 
square  foot  apportioned  was  charged  with  the  expense  of  a  little 
over  2  j  actual  square  feet  of  floor  space. 

Next,  the  depreciation  on  the  cost  of  the  machine  itself  is 
ascertained,  including  installation  and  necessary  equipment  such 
as  counter-shaft,  belting,  motors,  tools,  and  machine  fixtures. 
To  this  must  be  added  the  proportion  of  cost  of  power,  this  figure 
being  furnished  by  the  mechanical  superintendent  and  based  on 
horse  power,  also  supplies,  and  all  expense  directly  applicable 
to  the  machine. 

Having  taken  all  such  expense  into  consideration,  based  oil 
the  totals  of  one  year,  the  next  step  is  to  ascertain  by  careful 
enquiry  (to  be  verified  and  if  necessary  corrected  later  from  actual 
data),  the  number  of  hours  per  month  or  per  annum  which  each 
machine  will  run  under  normal  conditions.  Having  ascertained 
the  number  of  hours  per  annum,  we  use  this  as  a  divisor,  and  the 
total  yearly  cost  of  the  machine  (ascertained  as  described),  as 
the  dividend,  the  resulting  quotient  giving  the  machine's  hourly 
rate.  As  it  would  be  impractical  to  operate  this  plan  with  a 
different  rate  for  every  machine  in  the  shop,  the  machines  have 
been  divided  into  ten  groups,  with  a  different  rate  for  each  group 
and  the  machine  is  assigned  to  the  group  nearest  to  its  ascer- 
tained rate.  The  desire  is  to  provide  a  slight  leeway  per 
hour  on  each  machine  to  cover  unforeseen  expenses,  and 
also  to  provide  a  reserve  in  normal  times  which  can  be 
drawn  on  in  subnormal  times,  and  thus  to  keep  the  expense 
rate  fairly  even. 

Where  owing  to  trade  conditions  the  machines  do  not  operate 
sufficient  time  to  absorb  the  total  expense,  if  there  is  no  reserve 
to  draw  on,  I  prefer  to  show  the  deficit  as  a  charge  against  the 
department  income  or  profit  and  loss  account,  thus  keeping  the 
costs  on  a  normal  basis." 


CHAPTER  XVI 
MODERN  ACCOUNTING   SYSTEMS    FOR   STEEL  WORKS 


A  STEEL  WCRKS  ACCOUNTS 

The  following  outline  of  accounts  for  a  Steel  Manufacturing 
Company  including  crucible  and  open-hearth,  steel  making, 
rolling,  cold  rolling,  etc.,  has  been  furnished  to  the  author  by 
Mr.  Albert  Walton  of  Philadelphia,  manufacturing  accountant 
and  industrial  engineer.  The  general  outline  as  far  as  the 
main  accounts  are  concerned  is  analagous  to  the  arrange- 
ment that  would  be  satisfactory  for  a  machine  shop  and 
foundry,  or  for  a  large  corporation  with  varying  manufactur- 
ing activities.  Forms  used  by  Mr.  Walton  will  be  found  on 
pages  164  to  169. 

Some  extracts  from  Mr.  Walton's  letters  are  given  below. 
"  One  factor  that  has  often  been  overlooked  by  both 
manufacturers  and  accountants  is  that  of  having  the  cost 
system  an  actual  part  of  the  accounting  system.  Many 
concerns  are  content  to  have  a  memorandum  cost  system, 
built  in  pa  t  on  estimates  made  by  superintendents  and 
foremen,  but  I  have  never  found  such  a  system  that  would 
stand  investigation  or  analysis. 

'*  A  properly  arranged  accounting  system  is  one  that 
requires  the  data  from  which  the  entries  into  the  General 
Ledgers  are  made  up,  to  be  established  from  the  various 
shop  and  other  reports,  made  up  daily  and  carrying  accumu- 
lative totals  and  balances,  so  that,  if  necessary,  it  would  not 
be  required  to  wait  until  the  end  of  the  month  to  obtain  a 
balance  sheet,  the  record  being  in  such  shape  that  a  prompt 
and  accurate  statement  could  be  made  at  any  time.  The 
cost  of  arranging  such  a  system  is  not  any  more  expensive 
than  many  methods  that  do  not  even  give  monthly  results 
and  frequently  only  enable  a  Profit  and  Loss  statement  to 
be  made  once  a  year. 

"  In  one  actual  case  the  remodeling  of  the  cost  system  re- 
sulted in  a  reduction  of  16  clerks  in  the  accounting  and  cost 
department.  Prior  to  the  rearrangement  the  books  were 
closed  only  at  the  end  of  the  fiscal  year,  and  it  was  necessary 
to  close  down  the  factory  employing  S00  men  for  about  ten 
days  to  take  the  inventory.  With  a  considerably  reduced 
office  force,  they  now  have  a  monthly  balance  sheet  and  in- 
come statement,  and  the  cost  of  taking  inventory  on  Dec.  31st, 
1914,  was  reduced  $2400.00,  this  being  the  first  yearly  closing 
after  making  the  accounting  and  works  system  change,  and 
at  the  end  of  this  present  year,  1915,  there  will  be  a  further 
reduction.  This  shows  what  can  be  done  by  the  elimina- 
tion of  needless  detail  and  by  concentrating  the  work  of 
the  office  and  shop  clerks  in  directions  that  result  in  the 


accumulation  of  only  those  data  that  are  absolutely  neces- 
sary for  the  cost  accounts,  the  general  books  and  the  statis- 
tical reports. 

"  A  certain  company  of  international  reputation  found  that 
their  estimated  profits  on  a  line  of  heavy  machinery,  the  sales 
of  which  run  over  $1,000,000,  per  year  had  not  materialized. 
They  were  doing  business  with  absolutely  no  attempt  to 
arrange  their  estimate  in  detail  that  could  be  satisfactorily 
compared  with  the  cost  of  manufacture  of  the  machines. 
They  had  not  kept  costs  of  manufacture  in  detail  by  kind  of 
machines  built,  and  of  course  had  paid  no  attention  to  the 
costs  of  parts  of  individual  machines,  so  that  whether  certain 
machines  were  made  profitable  and  others  at  a  loss  was 
unknown. 

"  Their  real  mistake  was  in  accepting  large  orders,  based 
upon  the  guesses  of  their  engineers  as  to  what  the  work  could 
be  gotten  out  for — and  accepting  their  estimates  with  too 
much  assurance  that  the  figures  were  correct.  Their  engineers 
are  good  designers  but  very  poor  estimators.  In  this  case 
there  was  a  loss  that  ran  into  over  $100,000  that  could  have 
been  prevented  had  attention  been  paid  to  detail  costs  and 
the  proper  detailing  of  estimates. 

"  A  simple  but  very  satisfactory  method  of  routing  work  is 
in  effect  at  one  plant,  all  output  being  scheduled  practically 
three  months  in  advance,  and  weekly  sub-schedules  issued  for 
the  shop  to  work  to;  planning  boards  are  not  used,  but  a 
special  form  of  job  ticket  follows  the  work  through  the  shops, 
being  carried  in  a  special  holder  (see  Fig.  16,  page  167)  on  the 
truck.  There  are  200  standard  size  trucks  used  for  handling 
work,  and  there  has  been  worked  out  a  system,  whereby  a 
truck  load  of  parts  constitutes  an  order,  and  this  truck  starts 
from  the  foundry  or  stock  room,  and  after  passing  through  all 
necessary  shop  departments  winds  up  either  at  the  erecting 
department  or  at  the  finished  part  store  room. 

"  The  tickets  are  made  out  in  advance  in  the  Production 
Department  from  the  Production  Schedule  book,  in  which 
is  predetermined  the  quantity  of  parts  to  be  brought  through 
each  week  of  the  year.  This  card  is  sealed  in  a  holder  with 
celluloid  front  that  is  attached  to  the  truck;  the  only  column 
open  for  use  of  the  workman  is  the  one  headed  "  operatives," 
thus  preventing  the  changing  of  any  figures  by  the  operator, 
the  inspector  only  having  access  to  the  card  record  and  he 
being  furnished  with  pliers  and  lead  rivets  for  opening  and 
resealing  the  holders.  The  use  of  this  holder  did  away  with 
a  great  many  abuses  that  had  existed  prior  to  properly  safe- 
guarding the  cards." 


151 


152 


BOOKKEEPING  AND   COST  ACCOUNTING 


Ledger  Accounts. — Analysis  of  Entries  Thereto  and  Account  Symbols  for  a  Company  Operating  Steel  Furnaces,  Rolling 

Mills,  etc.      By  Albert  Walton. 
CHART  OF  LEDGER  ACCOUNTS  AND  SYMBOLS 


!0 

11 


12 
13 

14 
15 

16 

17 

20-22 


Assets 


.1 
Current. 


Cash 

Petty  Cash 
No.  I 


Treasurer's 
Fund 

Accounts  Re- 
ceivable 

Bills  Re- 
ceivable 

Unexpired 
Insurance 

Outside  Se- 
curities 

Cash  Ad- 
vanced to 
Branches 

Unexpirei  1 
Taxes 


B 
Inventory. 


Melting  Stock 

Crucible 

Ingots  and 

Billets 
O.  H.  Ingots 

and     Billets 

(Made) 
0.    H.    Ingots 

and     Billets 

(Purchased) 
Billet  Cost 

Adjustment 
Work  in 

Process 
Finished 

Stock 
Finished 

Stock  on 

Order 
Wire  Dept. 

Stock 

Wire  Dept 
Process 
Stock 

Wire  Dept. 
Finished 
Stock 

Fuel 

Melters  Sup- 
plies 

General  Stores 

Stock  Adjust- 
ment 

Scrap 

Warehouses 


C 

Fixed. 


Real  Estate 


Buildings 


Machinery 
and   Equip- 

Branch  Prop- 
erty 


Liabilities 


D 
Current. 


Accounts 
Payable 

Notes  Pay- 
Payable 

Accrued  Int. 
on  Bonds 

Accrued 
Taxes 

Accrued  Pay 

Roll 
Dividend 

Income  Tax 
Deducted 

Deferred 
Charges 

Private 
Accounts 


E 
Reserve. 


Depreciation 

Relining 
Furnaces 

Rolls 


Contingencies 


F 
Capital. 


Capital  stock 
Bonds 

Surplus 


Loss  and  Gain 


G 

Revenue. 


From  Outside 
Securities 

Discount  on 
Purchases 

Interest 
Received 


Sales  A 
Sales  B 
Sales  C 
Sales  D 

Sales  E 

Sales  F 

Sales  G 

Sales  H 


H 

Cost. 


Cost  Adjust- 
ment 


Cost  of 
Sales  A 
Sales  B 

Sales  C 

Salt  3  D 


Sales  E 


Sales  F 


Sales  G 


Sales  H 


J 

Expense. 


Discount  on 

Sales 
Executive 

Expense 

Sales  Expense 


Claims    and 
Allowances 

Freight 
Allowed 
Interest  Paid 


X  and  P 

Expense 

Ledger 

Accounts, 

X  20  to  614 

P  60  to  4024 

(see  list  in 

following 

pages) 


Profit 
and 
Loss. 


Acct. 
Symbol 


EXPLANATION   OF  ACCOUNTS 

Account 


Acct. 
Symbol 


Account 


Al 


A4 


CASH 

(Financial  Ledger) 
Sub-accounts,  A1a,  A1b,  etc.,  for  various  Branches. 
Analysis  of  Entries 

Debit  at  end  of  month  with: 

Cash   received   and   deposited   in   banks   during   the   month 

See  Cash  Received  Book  for  details. 
Credit  with: 

The   amount   of   checks   issued   during    the    month    (entries      Debit  with: 

made  at  end  of  month).     See  Check  Register  for  details. 
Balance:  The  available  cash  in  Banks  at  end  of  month. 


TREASURER'S  FUND 

(Financial  Ledger) 
Debit  with: 

Moneys    issued    to  meet   Treasurer's   special   disbursements. 
Credit  xmlh: 

Disbursements  made.     Details  in  Treasurer's  private  Journal. 


A5 


ACCOUNTS  RECEIVABLE 
(Financial  Ledger) 
The  total  Charge  Sales  at  the  end  of  each  month. 


A2  PETTY  CASH  No.  1 

(Financial  Ledger) 
Debit  with: 

Amount  placed  in  fund  to  meet  currency  requirements. 
Credit  with: 

Disbursements  from  the  fund,  as  per  Petty  Cash  Book. 
Balance: 

Funds  on  hand  to  meet  petty  cash  disbursements,  and  pay  roll 

advance  payments. 


Credit  with: 

a.  Footings  of  "Accounts  Receivable"  column  of  Cash  Re- 
ceived Book,  at  end  of  each  month.  Includes  all  payments 
received  from  customers  plus  the  discount  allowed. 

6.  Allowance  to  customers  for  goods  returned.  Claims  al- 
lowed, etc.  charged  to  Mdse.  or  to  Profit  and  Loss. 

c.  Accounts  that  are  uncollectible,  charged  to  Reserve  for 
Bad  Debts  or  to  Profit  and  Loss. 

Balance:  The  amount  due  and  collectible  from  customers. 
Should  agree  with  the  result  of  a  trial  balance  of  customers' 
ledger  cards. 


MODERN  ACCOUNTING  SYSTEMS   FOR  STEEL  WORKS 


153 


Acct. 
Symbol 


Account 


Acer. 
Symbol 


Account 


A6 


BILLS  RECEIVABLE 

(Financial  Ledger) 
Analysis  of  Entries 


Debit  with: 

The  face  value  of  notes  received  from  others. 
Credit  with: 

The  face  value  of  notes  received  from  others  that  have  been 

paid,  discounted,  or  otherwise  disposed  of. 
Balance: 

Represents  the  face  value  of  notes  on  hand. 

A7  UNEXPIRED   INSURANCE 

(Operating  Ledger) 

Debit  with: 

Cost  of  Insurance  (from  Accts.  Payable  Book). 
Credit  with: 

The  monthly  proportion  of  insurance  premiums  that  have 

been  charged  to  this  account,  the  proper  Operating  Expense 

Accounts  being  charged. 
Balance: 

Represents  the  Cost  of  Unexpired  Insurance. 


A8 


OUTSIDE   SECURITIES 

(Financial  Ledger) 


Debit  with: 

Cost  of  Stocks  and  Bonds  of  other  companies  purchased  or 

acquired. 

If  deemed  advisable  to  depreciate  at  any  later  period  the  value 

of  such  stocks  when  first   acquired,  charge   Profit   and   Loss 

with  the  difference  between  actual  cost  and  the  Company's 

valuation. 

Credit  with: 
Cost  (or  valuation)  of  Stocks  and  Bonds  of  other  companies 
sold.     The  difference  between  the  Cost   (or  valuation)   and 
Selling  price  should   be   charged   or   credited   to   Profit  and 
Loss  Account. 

Balance: 

Represents  the  Company's  valuation  of  Stocks  and  Bonds 
of  other  Companies  on  hand. 

A9  CASH  ADVANCED  TO  BRANCHES 

(Financial  Ledger) 
Sub 
Accts. 

A9a Branch 

A9b 

A9c 

Debit  with: 

All  items  of  Cash  Advanced  to  Branches. 

Credit  ivith: 
Disbursements  made  by  Branches  from  this  fund,  debiting  the 
various  accounts  chargeable  therewith,  as  per  the  distribution 
furnished  by  Branches. 

Balance: 

Unexpended  cash  in  hands  of  Branches  at  the  time  their 
report  of  disbursements  was  made. 

Note: 

Branches  should  make  report  of  their  disbursements  as  of  the 
last  day  of  each  month  and  mail  it  to  the  main  office  not  later 
than  the  first  business  day  of  the  succeeding  month. 


A10  UNEXPIRED  TAXES 

(Operating  Ledger) 

Debit  with: 
Amount  of  taxes  paid. 

Credit  with: 

The  monthly  proportion  of  taxes  charged  to  operating  expense 
accounts. 

Balance: 

Amount   of   taxes   paid   but   not   yet   charged   to   operating 
accounts. 


B 


FACTORY  OPERATING  ACCOUNTS 


Bl 
B2 
B3 
B4 
B5 
B6 


B8 
B9 


Melting  Stock 

Crucible  Ingots  and  Billets 

O-H  Ingots  and  Billets,  Own  Make 

O-H  Ingots  and  Billets,  Purchased 

Cost  Adjustment 

Mill,  in  Process 
B6a  Mill  Cost  Adjustment 
B7     Finished  Rolled  Product,  Warehouse  A 

Finished  Rolled  Product,  Warehouse  B 

Wire  Dept.  Stock 
BIO  Wire  Dept.  Process  Stock 
Bll  Wire  Dept.  Finished  Stock 
B12  Fuel 

B13  Melters'  Supplies 
B14  General  Stores 
B16  Stock  Adjustment 
B16  Scrap 

Debit  irith: 
a.  Cost  of  Material  purchased. 
6.  Cost  of  Inbound  Freight  on  Materials. 
c.   Pay  Roll  and  other  expense  in  connection  with  fabricating 
material  in  process. 

Credit  with: 
a.  Cost  of  Materials  transferred  to  other  accounts  while  in 

process  of  fabrication  and  when   finished. 
6.  Cost  of  Materials  sold,  at  which  time  the  proper  Cost  of 
Sales  account  will  be  charged. 

Bala  nee: 

Represents  the  Cost  of  Materials  on  hand. 

Note: 

The  debits  and  credits  to  the  various  accounts  for  materials 
transferred  to  other  accounts  during  process  or  when  finished 
and  delivered  to  finished  stock  B7,  BS,  Bll,  will  be  compiled 
from  the  current  records  and  reports  furnished  by  each  depart- 
ment, and  from  the  distribution  of  pay  roll  and  other  expenses. 
Journal  entries  will  be  made  at  the  end  of  each  month  cov- 
ering these  Various  transfers.  B.5,  Cost  Adjustment,  will  be 
used  as  a  balancing  account  to  take  up  the  differences  between 
actual  prices  paid  for  or  actual  costs  of  rolled  billets  and  the 
estimated  values  that  may  at  times  have  to  be  used  when  the 
billets  are  worked  up  prior  to  the  receipt  of  outside  invoices  or 
of  the  approval  of  them  in  case  of  a  price  dispute,  and  when  the 
cost  of  billets  of  our  own  makes  are  not  obtainable  until  after 
the  end  of  a  current  month.  In  these  cases  the  entries  will 
be  as  follows: 


Example: 
Dr. 


Billet  Account 


Stock 


50,000 


154 


BOOKKEEPING  AND   COST  ACCOUNTING 


Dr. 

Billet  Cost 

Adjustment 

Cr. 

(1) 

(3) 

1000 
146 

(2) 

1146 

Dr. 

Mill  in  Process 

Cr. 

(2) 

1146 

In  entry  No.  1,  it  is  assumed  that  certain  billets  of  a  value 
estimated  at  $1000  are  used  from  stock  for  a  specific  rolling 
order.  At  the  end  of  the  month  the  true  cost  is  found  to  be 
$1146,  this  amount  is  credited  to  Billet  Cost  Adjustment  and 
debited  to  Mill  in  Process  Account  as  per  entry  No.  2.  The 
credit  balance  of  $146  will  be  closed  into  Billet  Account  as 
shown  in  entries  No.  3.  A  clear  record  of  the  transactions  is 
thus  made.  This  refinement  in  accounting  applies  principally 
to  mills  rolling  short  orders  for  special  specification  steel  where 
it  is  necessary  to  estimate  the  cost  prior  to  the  end  of  a  month. 

Example: 

Dr.  B  20  Warehouse  (New  York)  Cr. 


To  B    7 

100  tons  Billets  @  26 

2600 

By  Cost  of  Sales,  Class  A, 
50  tons  @  27           (1) 

1350 

To  B  11 

100  tons  Wire  @  30 

3000 

By  Cost  of  Sales,  Class  B, 
50  tons  @  31.50      (1) 

1575 

To  J     3 

Sales  Warehouse  Exp. 

250 

This  entry  is  typical  of  the  method  of  charging  stocks  received 
from  the  Home  Warehouse  to  Inventory  Accounts  at  the  trans- 
ferred Cost  Value,  to  which  is  added  the  monthly  charges 
covering  the  cost  of  the  selling  expense  of  the  Branch  Ware- 
house. This  addition  to  cover  Branch  expenses,  freights,  etc., 
calls  for  the  establishment  of  a  higher  cost  of  sales,  and  this 
has  been  assumed  in  the  above  entry  to  be  covered  by  $1  per 
ton  on  billets  and  $1.50  per  ton  on  wire. 
Subsequent  entries  will  then  be  as  follows: 

Dr.     (H  5  and  H  6,  Cost)      Sales      (G  5  and  G  6,  Revenue)     Cr. 


ToB20  (1)  H5: 
To  B  20  (1)  H6: 

Cost  Billet  Sales      1350 
Cost  Wire  Sales       1575 

(2)   G  5.  Sales  Billets 
(2)   G  6.  Sales  Wire 

1500 
1800 

Dr. 

A  5.  Accounts  Receivable 

Cr. 

Sales,  G  5  and  6 

3300 

These  entries  explain  the  method  of  crediting  Warehouse,  B20, 
and  debiting  the  proper  Cost  of  Sales  accounts  H5  and  H6, 
also  the  crediting  of  the  proper  Sales  Revenue  accounts  G5 
and  G6,  and  debiting  Accounts  Receivable,  A5. 
The  subsequent  entries  to  cover  the  adjustment  of  claims  and 
allowances  to  customers  will  be  found  under  Claims  and  Allow- 
ances, J4. 

Accounts  H5,  H6,  Cost  of  Sales,  and  G5,  G6,  Sales  (Revenue) 
will  be  closed  at  the  end  of  a  fiscal  year.  At  the  end  of  each 
calendar  year  the  debit  balance  in  H5-6  and  the  credit  balance 
in  G5-6  will,  when  compared  with  each  other,  set  up  the  Gross 
Profit  on  Sales,  and  in  making  up  a  Monthly  Income  State- 
ment would  show  as  follows: 


For  Month 

%of 

Cost 

For  Year 
to  Date 

%of 

Cost 

Gross  Sales 

Less  Cost  of  Sales 

$135,000 
114,000 

18  4 

642,715 
503,400 

21,000 

139,315 

27  6 

B6-a,  Mill  Stock  Adjustment,  represents  a  balancing  account 
to  prevent  undesirable  fluctuations  in  Mill  Stock  Accounts, 
due  to  Mill  Report  errors.  It  is  an  account  similar  to  Billet 
Cost  Adjustment  and  it  is  used  in  the  same  manner  where  it 
is  necessary  to  estimate  the  cost  of  rolling  prior  to  the  actual 
monthly  cost  being  established.  Outside  purchases,  however, 
do  not  enter  into  consideration.  The  accounting  for  a 
specific  case  would  be  as  follows: 


Dr. 

B  6. 

Mill 

in  Process 

Cr. 

(1) 
(3) 

$1000 
50 

00 
00 

Dr.                    B  6a.     Mill  Cost  Adjustment 

Cr. 

(1) 

(3) 

$1000 
50 

00 
00 

(2) 

$1050 

00 

Dr.                B   7. 

Warehouse  (Finished  rolled  steel) 

Cr. 

(2) 

$1050 

00 

Entries  No.  1  and  2  are  made  during  a  month;  after  the  cost 
is  established  early  in  the  following  month,  the  correcting 
entry  No.  3  is  made. 

Accounting  entries  covering  the  rolling  of  ingots  into  billets 
and  of  billets  into  finished  Rolled  Product: 


B  6.   Mill  in  Process 


Cr. 


(1)   Billets 

1380 

(2)   Finished  product 

1600 

(1)   Ingots 

1000 

(6)   Scrap 

30 

(4)   Pay  roll 

200 

(3)   Billets  (rolled) 

1150 

(5)   Expense  (overhead) 

200 

Dr. 


B  3a  Ingots 


Cr. 


1000 


B  3f>  Billets 


(3) 


1350 


B  7  Finished  Product  (Warehouse  A) 


Cr. 


(2) 


D  5  Pay  roll 


Cr. 


X — Expense 


Cr. 


200 


B    lc   Melting  Stock   (Scrap,  Sub-account) 


This  entry  shows  the  source  of  the  various  entries  establishing 
the  debits  and  credits  of  B6,  Mill  in  Process,  and  it  is  assumed 
that  all  the  expense  debited  thereto  has  been  absorbed  by  the 
product  and  scrap  made.  In  actual  practice  there  will  be  a 
balance  of  work  in  process  to  carry  forward  into  the  succeeding 
month's  account. 


MODERN  ACCOUNTING   SYSTEMS   FOR  STEEL  WORKS 


155 


Stock  Adjustment 

This  account  will  be  debited  or  credited  with  the  amount  of 
any  important  errors,  discovered  during  a  year  to  have  been 
made  in  the  physical  inventory  taken  at  the  end  of  the  previous 
fiscal  year,  which  it  would  not  be  correct  or  advisable  to 
debit  or  credit  to  specific  current  inventory  accounts.  At 
the  end  of  the  current  year  the  balance  in  Stock  Adjustment 
Account  should  be  debited  or  credited  to  Surplus  Account, 
thus  withdrawing  the  correction  from  the  current  year's 
statements  as  to  operating  results,  that  should  not  be  affected 
by  errors  applying  to  the  preceding  year. 

Acct. 

Symbol  Account 

B20  New  York  Warehouse 

B21  Chicago  Warehouse  (Consigned  Stock) 

B22  San  Francisco  Warehouse  (Branch  Acct.) 

Analysis  op  Entries 
Debit  with: 

Cost  of  Materials  transferred  from  Stock  Accounts  B7  and  Bll. 

Credit  with: 
Cost  of  Materials  sold,  at  which  time  the  proper  Cost  of  Sales 
account  will  be  charged. 

Balance- 
Represents  the  cost  of  materials  on  hand. 

Note: 

Materials  carried  at  outside  Warehouses  are  billed  to  them  at 
cost.  When  sales  are  made  from  these  stocks  in  addition  to 
crediting  the  specific  Warehouse  Stock,  the  Cost  of  Sales 
Account  (proper  subdivision)  should  be  charged  with  the  cost 
of  the  specific  sale — and  General  Sales  (proper  subdivision) 
should  be  credited  with  the  billing  value.  This  will  then  bring 
all  sales  into  General  Sales  Account,  and  set  up  the  Gross 
Profit  on  the  Company's  business.  If  it  is  desired  to  maintain 
a  separate  identity  for  each  Outside  Warehouse  and  credit 
the  sales  made  from  each  to  its  own  account  it  can  be  accom- 
plished by  carrying  subsidiary  Sales  Accounts  for  each  outside 
Warehouse,  treating  them  as  follows: 

Entries  Covering  Transactions  at  Branch  Warehouses 
Branch  Warehouse  Account 

Debit  with: 
a.  Cost  of  materials  transferred  to  Branch. 
6.  Warehouse  expense,  salaries,  commissions,  insurance,  freight, 
etc.     (This  may  be  on  a  percentage  basis  to  maintain 
a  fair  distribution  of  expense.) 

Credit  with: 

Cost  of  sales  made,  as  established  at  Branch,  so  as  to  ensure 
a  fair  cost  of  sales  f  .o.b.  Branch. 

Balance: 

Represents  the  cost  value  of  stock  on  hand. 

Note. 

The  sales  for  the  month  will  be  credited  at  billing  value  and 
charged  at  the  transfer  value  plus  the  proper  proportion  of 
Warehouse  Expense.  The  difference  between  this  revised  Cost 
and  the  billing  value  will  give  the  Gross  Profit  on  such  sales. 

INVENTORY  SUB-ACCOUNTS 

The  Inventory  Accounts  Bl  to  B24  represent  the  principal  or 
controlling  inventory  accounts  and  each  is  subject  to  further 
subdivision  as  deemed  necsesary: 

For  example:  Bl,  Melting  stock  may  be  subdivided  as  follows: 
Bla.  Melting  Bar. 


b.  Shovel  scrap,  punchings,  etc.,  purchased. 

c.  Own  make  scrap. 

d.  Ferro-manganese. 

e.  Ferro-silicon. 
/.   Tungsten. 

g.  Vanadium,  etc. 
Similarly  other  divisionswould  be  established  on  form  necessary 
to  cover  the  different  kinds  of  finished    Rolled   steel,   Fuel 
General  Stores,  etc.     The  Inventory  Account.  B3  and  B4  may 
be  divided  into: 

B3a,  O-H  Ingots — Own  make. 

B3b,  O-H  Billets— Own  make. 

B4a,  O-H  Ingots — Purchased. 

B4b,  O-H  Billets— Purchased. 
In  the  detail  accounting  this  would  be  done — even  though  for 
balance-sheet  purposes  they  were  combined  together. 


Acct. 
Symbol 


Account 


CI 


REAL  ESTATE 


(Operating  Ledger) 
Debit  with: 

a.  Cost  of  land  purchased. 

b.  Cost  of  surveying,  title  insurance,  recording  fees,  etc. 

c.  Cost  of  important  improvements,  i.e.,  grading,  construct- 
ing roads,  etc. 

Credit  ivith: 
Cost  of  land  sold,  Profit,  or  Loss  on  sales  of  real  estate  entered 
in  this  account,  but  if  land  is  sold  Profit  and  Loss  Account  would 
be  credited  with  profit  or  charged  with  loss,  resulting  from  the 
sale.  Example:  If  land  cost  $10,000  and  sold  for  $15,000  cash, 
the  Journal  Entry  would  be  Cash  $15,000,  To  Real  Estate 
$10,000,  To  Profit  and  Loss  $5000. 

Balance: 

Represents  cost  of  land  owned. 

C2  BUILDINGS 

(Operating  Ledger) 
Debit  with: 

a.  Actual  Cost  of  buildings  purchased  or  constructed. 

6.  Cost  of  replacing  buildings,   or  important  parts   (hereof, 

destroyed  by  fire,  flood,  etc.,  or  on  account  of  ordinary  wear 

and  tear. 
Credit  with: 

Cost  of  buildings  replaced  (if  any)  at  which  time  Reserve  for 

Depreciation  (Buildings)  should  be  charged. 
Balance: 

Represents  cost  (or  appraised  value)  of  Buildings  owned. 

Example  of  Account  C-2.  Original  cost  of  building,  $20,000. 
Depreciation  Reserve,  Cr.  balance,  $4000.  Present  net  value, 
estimated,  $16,000.  Damage  by  fire,  estimated,  $8000.  Re- 
ceived cash  from  Insurance  Co.,  $6000.  Repaired  damage  at 
cost  of  $10,000.  Appraised  value  of  building  now  $18,000. 
Required  the  entries  to  be  made: 

C2.  Buildings 


Jan.  I 
June  5 


July  I 


Balance,  Coat 
To  Cash  (repairs) 


To  Balance 

(present  valued 


$20,000 
10,000 

Mar.  20 

June  5 
June  30 
June  30 

$30,000 

$18,000 

By  Cash  from 

Ins.  Co. 
By  Depn.  Reserve 
By  Profit  and  Loss 
By  Balance 


$6,000 
4,000 
2,000 

IS, 000 


Mo, nun 


156 


BOOKKEEPING  AND   COST  ACCOUNTING 


E  1.  Depreciation  Reserve 

June  5 

To  Buildings              $4,000, 

Jan.  1 

Cr.  Balance 

$4,000 

Acct. 

Symbol                                  Account 

Acct. 
Symbol 


Account 


C3  MACHINERY  AND  EQUIPMENT 

(Operating  Ledger) 
Debit  witli: 

a.  Cost  of  all  machinery  and  equipment  purchased  or  built. 
6.  Cost  of  first  installation,  but  not  subsequent  installations 
due  to  changes  which  do  not  add  to  asset  value,  which  should 
be  charged  to  Operating  Expense. 

c.  Cost  of  additions  and  alterations,  only  however  when  such 
changes  increase  the  original  efficiency  of  machine  or  equip- 
ment. 

d.  Cost  of  new  Machinery  or  of  replacing  machinery  or  equip- 
ment scrapped  or  sold  on  account  of  wear  or  obsolesence. 

Credit  with: 

a.  Cost  of  any  machinery  or  equipment  sold  the  difference 
between  the  cost  and  the  amount  it  sold  for  being  charged 
against  Reserve  for  Depreciation  Account  (Machinery  and 
Equipment). 

b.  Cost  of  any  Machinery  and  Equipment  replaced  or  scrapped, 
Reserve  for  Depreciation  Account  (Machinery  and  Equip- 
ment) being  charged. 

Balance: 
Represents  the  cost  of  Machinery  and  Equipment  on  hand. 

C4  BRANCH  PROPERTY 

(Operating  Ledger) 

Debit  with: 
Actual  cost  of  property  owned. 

Credit  irith: 

Cost  of  any  property  sold  the  difference  between  the  cost  and 
the  amount  it  sold  for  being  charged  against  Reserve  for  De- 
preciation account.  If  the  Reserve  is  insufficient  charge  the 
deficit  to  Profit  and  Loss. 

Balance: 

Represents  cost  of  branch  property  owned. 

Dl  ACCOUNTS  PAYABLE 

(Financial  Ledger) 

Debit  with: 

a.  Footings  of  "Accounts  Payable"  column  per  Check  Register 
(Entry  to  be  made  at  end  of  month). 

b.  Amounts  allowed  by  creditors  for  materials  returned, 
damaged,  etc. 

Credit  with: 

Footings  of  "  Accounts  Payable  "  column  per  Voucher  Record 

(Entry  to  be  made  at  the  end  of  month). 
Balance' 

Represents  the  amount  owing  to  creditors  for  Materials,  etc., 

purchased,  and  should  agree  with  the  aggregate  amount  of 

unpaid  Vouchers. 

D2  NOTES  PAYABLE 

(Financial  Ledger) 

Debit  with: 
The  face  value  of  all  notes  redeemed. 

Credit  with- 

The  face  value  of  all  notes  issued. 

Balance: 

Represents  the  aggregate  face  value  of  notes  payable  out- 
standing. 


D3    ACCRUED  INTEREST  ON  BONDS  PAYABLE 

(Financial  Ledger) 
Debit  with: 

Payments  of  interest  on  outstanding  Bonds. 
Credit  until : 

Interest  accrued  for  the  month  on  outstanding  Bonds  (entry 

made  at  end  of  month),  charging  Profit  and  Loss. 
Balance: 

Represents  the  amount  of  interest  accrued  but  not  due. 

D4  ACCRUED  TAXES 

(Financial  Ledger) 
Debit  irith: 

Amount  of  Tax  Bills  when  they  are  paid. 
Credit  with: 

Estimated  monthly  proportion  of  taxes,  at  which  time  debit 

the  various  Operating  Expense  Accounts  to  which  taxes  are 

charged,  with  the  proportion  proper  to  each. 
Balance: 

Represents  Estimated  Taxes  accrued  but  not  due. 

D5  ACCRUED  PAYROLL 

(Operating  Ledger) 
Debit  with: 

All  payments  for  labor. 
Credit  with: 

a.  Labor  charged  to  Productive  Accounts. 

b.  Labor  charged  to  Non-Productive  Accounts. 

c.  Salaries  not  paid  from  Treasurer's  fund. 
Balance: 

Represents  pay  roll  accrued  but  not  due  for  payment. 

D6  DP/TDENDS 

(Financial  Ledger) 
Debit  with: 

Dividends  paid. 
Credit  with: 

Dividends  declared. 
Balance: 

Represents  dividends  due  but  not  paid. 

D7  INCOME  TAX  (Deductions)* 

(Financial  Ledger) 
Debit  u'ith: 

Items  of  Income  Tax  deducted  from  Salaries  and  paid  to  the 

Government,  Cash  being  credited. 
Credit  with: 

a.  Any  adjustments  that  may  be  necessary. 

6.  Amount  of  Income  Tax  return  made  to  the  Government. 
Balance: 

Will  represent  the  amount  of  Income  Tax  Collected  but  not 

remitted. 

♦Example  of  Entries  to  D7,  Income  Tax: 

Mfg.  a/c  To  Salaries  500 

G.M'a  Sal.  for  March  500 

Salaries  To  Income  Tax  60 

1%  Deducted  from  G  Ms  Sal.  for  year  60 

Salaries  To  Cash  440 

Bal.  pd.  G.M.  440 

Income  Tai  To  Cash  60 

Paid  to  Govt.  60 


MODERN  ACCOUNTING  SYSTEMS  FOR  STEEL  WORKS 


15? 


Acct. 
Symbol 


Account 


D8  DEFERRED  CHARGES 

(Financial  Ledger) 

Debit  with: 
Amount  of  bonus  set  aside  as  due  specific  employees,  Accrued 
Pay  roll  being  credited. 

Credit  with: 
Amounts  of  bonus  paid  to  specific  employees,  Operating  Ex- 
pense being  charged. 

Balance: 

Will  represent  Bonus  set  aside  but  not  yet  paid  to  employees. 


D9 


PRIVATE  ACCOUNTS 


(Financial  Ledger) 

Debit  with: 
Amounts  paid  to  employees  chargeable  to  their  private  account, 
crediting  Cash. 

Credit  with: 

Amounts  as  established  by  properly  approved  traveling  and 
other  expense  vouchers,  and  with  cash  returned,  expense 
accounts  or  Cash  being  charged. 

Balance: 

If  a  debit  will  represent  the  total  amount  of  Company's  fund 
in  hand  of  employees,  as  traveling  and  special  expenses,  that 
have  not  been  accounted  for  to  date,  and  will  be  transferred 
to  the  Asset  side  of  a  balance  sheet.  If  a  credit  will  represent 
a  liability. 

El  RESERVE  FOR  DEPRECIATION 

Sub 
Accts. 

El  a  Reserve  for  Building. 
EIb  Reserve  for  Machinery  and  Equipment. 
(Operating  Ledger) 

Debit  with: 
a.  Cost  of  replacing  building,  machinery  and  equipment,  or 
important  parts  thereof,   at  which  time  credit  Building  or 
Machinery  and  Equipment  Account. 

6.  Difference  between  cost  and  selling  price  of  Buildings,  Ma- 
chinery or  Equipment  sold,  the  proper  asset  account,  C2  or 
C3  being  credited. 

c.  Cost  of  Buildings,  Machinery  or  Equipment  discarded  or 
scrapped,  the  proper  asset  account,  C2  or  C3,  being  credited. 

Credit  with: 
At  the  end  of  each  month  one-twelfth  of  the  total  estimated 
depreciation  for  the  year,  at  which  time  debit  the  various 
Operating  Expense  Accounts  to  which  Depreciation  is  charge- 
able with  the  proportion  proper  to  each. 

Balance: 

Represents  the  available  Reserve  for  Depreciation.  When  com- 
piling a  Balance  Sheet  the  balance  of  this  account  should  be 
deducted  from  the  Asset  Accounts  C2  and  C3,  in  order  to  show 
their  estimated  present  value. 

Note: 

At  the  end  of  fiscal  year  any  difference  between  the  estimated 
depreciation  charged  off  monthly  and  the  actual  depreciation 
as  established  at  close  of  year  will  be  adjusted  through  Profit 
and  Loss  Account. 

E2  RESERVE  FOR  RELINING  FURNACES 

Sub 
Accts. 

E2a  Relining  O-H  Furnace. 
E2b  Relining  Crucible  Furnace. 

(Operating  Ledger) 
Debit  with: 

Cost  of  relining  Furnaces  (except  for  unimportant  and  minor 
repairs  which  will  be  absorbed  in  Operating  Expense)  crediting 


Pay  Roll  and  Material  accounts  with  their  respective  portions 
of  relining  expense. 

Credit  with: 

The  estimated  monthly  charges  to  Operating  Expense  Accounts 
to  which  rebuilding  furnace  expense  is  chargeable. 

Balance: 

Represents  the  available  reserve  for  rebuilding  Furnaces. 

Note: 

At  the  end  of  the  fiscal  year  any  debit  or  excessive  credit 

balance  in  Reserve  for  Rebuilding   Furnace   Account   should 

be  closed  out  as  follows: 

a.  If  a  debit  balance  by  charges  to  Operating  Expense  Accounts 
sufficient  to  close  out  the  debit  balance  and  leave  a 
reasonable  credit  balance  to  carry  over  into  the  succeed- 
ing year. 

6.  If  an  excessive  credit  balance  by  credits  to  Operating  Ex- 
pense Accounts  and  debits  to  Reserve  for  Rebuilding 
Furnaces  of  an  amount  sufficient  to  close  out  the  excess 
portion  of  the  credit  balance. 

c.  The  division  of  such  adjustment  between  Open-Hearth  and 

Crucible  Operating  Expense  Accounts  will  be  based 
upon  the  experience  gained  during  the  year  and  the 
amount  of  rebuilding  that  has  been  necessary. 

d.  It  will  be  proper  to  carry  forward  at  the  end  of  each  year 

a  reasonable  credit  balance  in  Reserve  for  Rebuilding 
Furnace  Account,  the  amount  depending  upon  the  phys- 
ical condition  of  the  furnaces  at  that  time  and  repre- 
senting the  approximate  cost  of  restoring  them  to  first 
class  condition. 


Acct. 

Symbol 


Account 


E3  RESERVE  FOR  ROLLS 

(Operating  Ledger) 

Debit  with: 

The  Cost  of  making  new  and  changing  and  repairing  old  rolls, 
Pay  Roll  and  Material  accounts  being  credited  with  their  re- 
spective portion  of  this  expense. 

Credit  with: 

The  estimated  monthly  charge  to  Mill  Accounts  to  which  Roll 
expense  is  chargeable. 

Balance: 

Represents  the  available  reserve  for  providing  new  and  repair- 
ing old  rolls. 

Note: 

At  the  end  of  a  fiscal  year  any  debit  or  excessive  credit  balance 
in  this  account  will  be  adjusted  in  a  manner  similar  to  that 
arranged  for  the  account  Reserve  for  Rebuilding  Furnaces  E2. 


E4  RESERVE  FOR  CONTINGENCIES 

Sub 

Accts. 

E4a  Special  and  General  Expenses. 

E4b  Strike  Expenses. 

E4c  Special  Experiments  and  Investigations. 

E4d  Patent  Litigation  and  Expenses. 

E4e  Bad  Accounts. 

E4f  Bonus  to  Employees. 

E4g  Extraordinary  Repairs  and  Renewals. 

(Financial  Ledger) 
Debit  with: 

All  expenses  of  such  kinds  as  it  has  been  determined  to  pro- 
vide for  through  this  reserve. 


158 


BOOKKEEPING  AND   COST  ACCOUNTING 


Credit  with: 

An  Estimated  monthly  charge  to  Operating  Expense  Accounts 
of  Manufacturing  departments.  On  special  occasions  when 
it  is  anticipated  that  extraordinary  charges  may  be  pending 
against  this  account  it  will  be  proper  to  raise  sufficient  credit 
in  the  account  to  meet  them  by  direct  charges  to  Profit  and 
Loss. 

Balance: 

Represents  the  available  reserve  for  Contingencies. 

Note: 

The  purpose  of  the  Reserve  for  Contingencies  is  to  provide  for 
certain  expenditures  that  will  have  to  be  met  at  specified 
times  and  for  others  that  may  be  unforeseen.  The  principal 
expenditures  that  will  be  paid  from  this  reserve  are  as  follows: 

E4a.     Special  and  General  Expenses. 

Will  include  payments  made  to  special  agents  for  services  and 
expenses  while  engaged  on  special  work  not  connected  with 
current  operations  and  construction,  also  payments  to  em- 
ployees and  others  in  consideration  of  extra  services  in  direc- 
tions that  are  beneficial  to  the  Company's  interests. 

E4b.     Strike  Expenses. 

E4c.     Special  Experiments  and  Investigations. 

Will  include  special  experiments  and  investigations  that  may 
affect  Operating  and  Sale  Departments,  but  which  will  not 
be  charged  thereto  unless  the  experiment  or  investigation 
accrues  ultimately  to  the  credit  of  such  Departments,  when 
it  will  be  proper  to  credit  this  Account  E4c,  and  charge  the 
department  benefited  thereby  with  all  or  a  portion  of  the 
expense  as  may  be  deemed  advisable. 

E4d.     Patent  Litigation  and  Expe?ises. 

Will  include  all  expenses  connected  with  protecting  or  securing 
patents  and  patent  rights.  Amounts  paid  for  patents  pur- 
chased may  be  charged  to  this  account. 

E4e.  Bad  Accounts. 

Will  include  all  uncollectible  accounts  receivable  charged  off. 

E4f.  Bonus  to  Employees. 

Will  include  bonus  amounts  paid  to  employees  who  participate 
in  the  division  of  bonus  based  upon  the  net  profits  on  a  year's 
operations. 

E4g.  Extraordinary  Repairs  and  Reneirals. 

Will  include  the  cost  of  such  repairs  and  renewals  that  are 
extraordinary  in  character  and  which,  if  charged  into  the 
current  cost  of  operations  would  unduly  increase  it.  This 
account  will  not  include  the  rebuilding  of  Open-Hearth  and 
Crucible  Furnaces,  and  the  replacing  of  broken  Rolls,  which 
are  taken  care  of  through  special  reserve  accounts. 


Acer. 

Symbol 


Account 


Acer. 
Symbol 


Account 


Fl  CAPITAL  STOCK 

(Financial  Ledger) 
Analysis  op  Entries 
Debit  with: 

Par  value  of  shares  retired. 
Credit  with: 

Par  value  of  shares  issued. 
Balance: 

Represents  par  value  of  stock  outstanding. 

F2  BONDS 

(Financial  Ledger) 
Debit  with: 

Amount  of  Bonds  retired. 
Credit  with: 

Amount  of  Bonds  issued. 
Balance: 

Represents  amount  of  bonds  outstanding. 


F3 


SURPLUS 


(Financial  Ledger) 
Debit  with: 

Dividends  declared,  at  which  time  credit  Dividend  account. 

Credit  with: 

Net  Profit  as  shown  by  Profit  and  Loss  Account  after  the 
closing  entries  have  been  made,  at  which  time  Profit  and  Loss 
account  should  be  charged,  thus  causing  the  latter  account 
to  balance. 

Balaticc: 

Represents  the  accumulated  net  profits  to  and  including  the 
last  closing  period,  less  any  dividends  paid. 

Gl  INCOME  FROM  OUTSIDE  SECURITIES 

(Financial  Ledger) 
Debit  with: 

Losses  sustained  on  Stocks  sold. 

Credit  with.: 

a.  Income  (dividends)  received  from  Stocks  owned. 

b.  Profits  realized  from  Stock  sold. 

Balance: 

Represents  net  income  from  Stocks  of  other  Companies. 

G2  DISCOUNT  ON  PURCHASES 

(Financial  Ledger) 
Debit  with: 

Discounts  taken  but  not  allowed  by  creditors. 

Credit  with: 

Footings  of  "Discount"  column  in  Check  Register  book  (entries 
made  at  end  of  month).  This  footing  represents  cash  dis- 
counts allowed  by  creditors. 

Balance: 

Represents  Net  Discounts  on  Purchases. 

G3  INTEREST  RECEIVED 

(Financial  Ledger) 
Debit  with: 

Any  adjusting  entries. 
Credit  with: 

All  interest  received  on  past  due  accounts. 
Balance: 

Will  be  transferred  to  Profit  and  Loss  accounts  at   closing 

period. 


G5  to  G12 


GENERAL  SALES 


(Representing  Division  of  Sales  by  classes  of  goods.     A  to  H 
inclusive.) 

(Financial  Ledger) 

Debit  with: 

The  debit  side  of  this  account  will  be  kept  in  the  Operating 
Ledger  and  will  be  known  as  Cost  of  Sales  Accounts  H.5  to 
H12  inclusive. 

Credit  with: 

The  billing  value  of  Sales  made  during  month  (both  cash  and 
charge  sales). 

Balance: 

When  the  Cost  of  Sales  Account  (kept  in  Operating  Ledger) 
is  deducted  from  the  credit  postings  in  general  Sales  Accounts 
the  balance  will  represent  Gross  Manufacturing  Profit  on 
Sales. 


MODERN  ACCOUNTING  SYSTEMS  FOR  STEEL  WORKS 


159 


Acct. 
Symbol 


Account 


HI 


COST  ADJUSTMENT 

(Operating  Ledger) 


Analysis  of  Entries 
Debit  or  Credit  U'ith: 

a.  Such  adjustments  as  are   necessary  on  account   of  using 

arbitrary  prices  in  establishing  cost  values. 
6.  Gains  of  losses  on  Sales  which  at  the  time  of  Sale  were 
credited  to  cost  at  an  arbitrary  price. 

Balance: 

Will  be  closed  out  to  Profit  and  Loss  at  closing  periods. 

Note: 

Cost  adjustment  entries  will  be  adjusted  from  time  to  time, 
the  basis  for  adjustment  being  value  instead  of  tonnage  as 
the  former  more  nearly  represents  the  most  equitable  basis. 
The  postings  to  this  account  will  come  from  all  Producing 
Depts.  and  the  detail  of  the  account  should  be  kept  on  sup- 
porting sheets  in  such  manner  as  to  show  each  department's 
cost  adjustments  separately. 


H5  to  H12 


COST  OF  SALES 


(Representing  Classes  of  Goods,  A  to  H  inclusive). 
(Operating  Ledger) 
Debit  ivith: 
a.  Cost  of  Sales  of  Product  shipped  each  month. 
6.  Gross  profits  taken  on  Product  sold  and  afterwards  returned 
by  customer. 

Credit  with: 
The  credit  side  of  this  account  will  be  kept  in  the  Financial 
Ledger  and  will  be  known  as  General  Sales  Account  Go  to 
G12  inclusive. 

Balance: 
The  debit   postings  in  these  accounts  will  offset  the  credit 
postings  in  General  Sales  Accounts,  the  credit  balance  remain- 
ing in  the  latter  accounts  representing  Gross  Manufacturing 
Profits  on  Sales. 

Jl  DISCOUNT  ON  SALES 

(Financial  Ledger) 
Debit  with: 
The  footing  of  "Discount"  column  in  Cash  Received  Book 
(entry  made  at  end  of  month).     This  footing  represents  cash 
discounts  allowed  to  customers. 

Credit  with: 
There  will  be  no  credits  to  this  account  excepting  possibly 
readjustments  for  corrections  of  discounts  revised. 

Balance: 

Represents  Net  Cash  Discounts  allowed  to  customers. 


J2 


EXECUTIVE  EXPENSE 

(Financial  Ledger) 


Debit  with: 

a.  All  expenses  chargeable  to  Executive  Dept. 

b.  All  expenses  that  are  general  to  the  Company's  business 
as  a  whole  and  not  directly  chargeable  to  other  accounts. 

Credit  with: 
Any  items  that  should  result  in  diminishing  the  charges  to 
this  account.     Charge  Factory  Operating  Account  B  with  the 
proportion  of  J2  that  belongs  to  the  factory. 

Balance: 

Represents  Net  Executive  Expense. 


Acct. 
Symbol 


Account 


J3 


SALES  EXPENSE 
(Financial  Ledger) 


Debit  with: 

All  expenses  connected  with  maintaining  the  Selling  Depart- 
ment. 

Credit  with: 

Any  items  that  should  result  in  diminishing  the  charges  to 
this  account. 

Balance: 

Represents  Net  Sales  Expense. 


J4 


CLAIMS  AND  ALLOWANCES 


(Financial  Ledger) 
Debit  xrith: 

Allowances  to  customers  for  product  returned,  claims  allowed, 
etc.,  at  the  same  time  credit  Accounts  Receivable. 

Credit  with: 
All  adjusting  entries  which  will  represent  debits  to  stock  and 
scrap  accounts  for  salvage  value  of  material  returned;  debiting 
General  Plant  Expense  for  manufacturing  loss  sustained,  and 
debiting  the  proper  sale  accounts  for  loss  of  profits  thereby. 

Balance: 

Will  represent  the  volume  of  claims  and  allowances  not  dis- 
posed of. 

J5  FREIGHT  PREPAID  AND  ALLOWED 

(Financial  Ledger) 
Debit  with: 
Freight  prepaid  and  allowed  on  shipments. 

Credit  xrith: 

Correcting  entries  if  any  affecting  previous  debits. 

Balance: 

Represents  Net  amount  of  Freight  prepaid  and  allowed  on 
shipments. 


J6 


INTEREST  PALD 
(Financial  Ledger) 


Debit  xrith: 

All  interest  items  on  Notes  Payable. 

Credit  xrith: 
Any  adjusting  entries. 

Balance: 

Will  represent  the  amount  of  interest  paid. 


Kl 


PROFIT  AND  LOSS 


(Financial  Ledger) 
Debit  with: 

a.  Such  items  of  expense  as  cannot  be  properly  chargeable  to 
any  other  account. 

b.  With  closing  entries  at  closing  periods. 
Credit  with: 

a.  Such  items  of  expense  as  cannot  be  properly  credited  to 
any  other  account. 

6.  With  closing  entries  at  closing  periods. 
Balance: 

After  all  closing  entries  have  been  made  the  balance  in  th.'s 
account  will  represent  the  Net  Profit  for  the  period  and  should 
be  transferred  by  Journal  Entry  to  Surplus  Account. 


160 


BOOKKEEPING   AND   COST  ACCOUNTING 


Acct. 
Symbol 


Account 


Acct. 
Symbol 


Account 


SUB  ACCOUNTS  OF  LEDGER  ACCOUNTS 

To  be  kept  in  Subsidiary  Ledgers  and  closed  into  the  Controlling 
Accounts  in  Operating  and  Financial  Ledgers  at  end  of  each 
month. 

B14-1     PAINTS 

B14-2     REFRACTORIES 

B14-3     ELECTRICAL  MACHINERY  AND  SUPPLIES 

B14-4     PIPE  FITTINGS 

B14-5     MISCELLANEOUS  STORES 

B14^6     OILS  AND  GREASES 

B14  -7     LUMBER 

B14-8     STATIONERY 

B14-9     MISCELLANEOUS  CASTINGS 

B14-10  ROLLS 

B14-11  PATTERNS 

B14-12  MACHINERY  AND  EQUIPMENT 

B14  13  NEW  CONSTRUCTION 

B12-1     ANTHRACITE  COAL 

B12-2     BITUMINOUS  COAL 

B12-3     GAS  COAL 

B12-4     COKE 

B12-6     COKE  DUST 

B12-6     WOOD 

B12-7     FUEL  OIL 

B12-8     CITY  GAS 

(Inventory  Ledger) 
Analysis  of  Entries 

Debit  with: 

a.  Cost  of  materials  purchased. 

6.  Cost  of  Inbound  Freight  on  materials  purchased. 

Credit  with: 

Disbursements  made  during  month,  established  from  Stock 
Keepers'  requisitions  and  special  reports  of  materials  used,  to 
be  priced  and  extended  by  General  Storekeepers'  office  and 
forwarded  to  Cost  Dept.  in  shape  for  distributing  to  cost 
accounts. 

Balance: 

Represents  the  cost  of  materials  on  hand  in  each  sub  account. 

Note: 

There  will  be  no  balance  left  in  the  four  accounts  B14-10, 
B14-11,  B14-12,  B14-13,  as  all  items  charged  thereto  will  be 
immediately  credited  out  to  the  final  account  to  which  they 
are  chargeable,  being  first  charged  to  a  Store  or  Inventory 
Account  as  a  convenience  in  accounting  for  all  receipts  through 
Stores  Account,  B14. 


B15\ 


STOCK  ADJUSTMENT 

(Inventory  Ledger) 


Debit  or  Credit  with: 

Such  adjustments  as  are  caused  by  overruns  and  shortages  of 
raw  materials,  process  and  finished  products. 

Balance: 

Will  be  closed  out  to  Profit  and  Loss  at  closing  periods. 


B16b  BILLET  PRICE  ADJUSTMENT 

(Inventory  Ledger) 

Debit  with: 

Stock  Preparing  Expense  and  credit  as  outlined  under  heading 
"  Stock  Preparing  Expense  "  Account,  P70  to  P710. 


X20  to  X216 


LABORATORY  EXPENSE 


(Expense  Ledger) 

Debit  with: 

All  charges  for  Pay  Roll  and  other  Expense. 

Credit  with: 

Proper  proportion  of  Laboratory  Expense  chargeable  to  various 
other  Expense  Accounts. 

Balance: 

This  account  will  close  out  at  end  of  each  month. 

Note: 

The  distribution  of  this  expense  will  be  based  upon  the  service 
rendered  the  various  Operating  Depts.  and  other  accounts,  and 
the  detail  distribution  sheets  should  show  separately  the  charges 
for  Chemical,  Metallurgical,  Physical  Testing  and  Open-Hearth 
Chemical  Laboratories. 

X30  to  X320  PAY,  COST  AND  ACCOUNTING  EXPENSE 

(Expense  Ledger) 

Debit  with: 

All  charges  for  clerical  and  other  Office  Expenses  in  connection 
with  the  Pay  Roll  and  Cost  Keeping. 

Credit  xeith: 

Proper  proportion  of  charges  to  various  other  Expense  Ac- 
counts. 

Balance: 

This  account  will  close  out  at  end  of  each  month. 

Note: 

The  distribution  of  this  expense  will  be  based  upon  the  service 
rendered  the  various  Operating  Depts.  and  other  accounts  as 
near  as  it  can  be  established,  and  may  be  covered  by  per- 
centage rates  varied  as  occasion  may  require. 

X40toX434         GENERAL  PLANT  EXPENSE 

(Expense  Ledger) 

Debit  irith: 

All  charges  for  Salaries,  Pay  Roll  and  other  Expenses  that  are 
not  charged  to  Departments. 

Credit  with: 

Proper  proportion  of  charges  to  various  other  Expense  Ac- 
counts. 

Balance: 

This  account  will  close  out  at  end  of  each  month. 

Note: 

The  distribution  of  this  expense  to  other  Expense  Accounts, 
will  be  in  proportion  to  the  service  rendered,  as  near  as  it  can 
be  determined;  certain  items  at  times  can  be  charged  directly 
to  specific  Operating  Expense  Accounts,  the  balance  may  be 
distributed  by  percentage  ratios  varied  as  occasion  may  re- 
quire. 

X50  to  X514     GENERAL  STORE  HOUSE  EXPENSE 

(Expense  Ledger) 

Debit  with: 
All  charges  for  Salaries,  Pay  Roll  and  other  Expenses. 

Credit  with: 

Proper  proportion  of  charges  to  various  other  Expense  Ac- 
counts. 

Balance: 
This  account  will  close  out  at  the  end  of  each  month. 

Note: 

The  distribution  of  this  expense  will  be  prorated  to  the  other 
expense  accounts  in  proportion  to  the  value  of  materials,  etc., 
issued  to  each  during  the  month. 


MODERN  ACCOUNTING  SYSTEMS  FOR  STEEL  WORKS 


161 


Acct. 
Stmbol 


Note: 


Account 


P60  to  P68  WAREHOUSE  EXPENSE 

(Expense  Ledger) 
Analysis  of  Entries 

Debit  with: 

All  charges  for  Pay  Roll  and  other  Expenses. 

Credit  with: 

Proper  proportions  of  charges  to  various  Cost  of  Sales  Ac- 
counts. 

Balance: 

This  account  will  close  out  each  month. 

Note: 

The  basis  for  distribution  of  this  expense  will  be  in  proportion 
to  service  rendered  for  storing  and  shipping  steel,  the  general 
items  being  prorated  in  proportion  to  the  direct  distribution 
and  charged  to  the  proper  cost  of  sales  accounts  H5  to  H12. 

P70  to  P710     STOCK  PREPARING  EXPENSE 

(Expense  Ledger) 

Debit  with: 

All  charges  for  Pay  Roll  and  other  Expenses. 

Credit  with: 

Charges  to  Billet  Price  Adjustment  Account. 

Balance: 

This  account  will  close  out  each  month. 

Note: 

As  this  expense  is  practically  an  addition  to  the  cost  price  of 
billets,  it  will  be  covered  lay  adding  arbitrary  amounts  per  ton 
to  all  billet  prices,  establishing  different  arbitrary  prices  for 
various  kinds  of  billets  as  past  experience  indicates  to  be 
proper.  A  sub  account  Billet  Price  Adjustment  will  be  kept 
in  the  Inventory  Ledger  and  this  account  will  be  charged 
with  Stock  Preparing  Expense  and  will  be  credited  with  the 
amounts  established  through  the  use  of  the  arbitrary  prices 
per  ton  that  have  been  added  to  the  cost  of  billets  handled  by 
this  department  during  the  month.  The  arbitrary  prices  used 
will  be  adjusted  from  time  to  time  as  the  balance  in  Billet 
Price  Adjustment  Accounts  shows  need  thereof. 

P80  to  P812     INDUSTRIAL  RAILWAY  EXPENSE 
(Expense  Ledger) 

Debit  with: 
All  charges  for  Pay  Roll,  Fuel  and  other  Expenses. 

Credit  with: 

Proper  proportion  of  charges  to  various  other  Expense  Ac- 
counts. 

Balance: 
This  account  will  close  out  each  month. 

Note: 

The  distribution  of  this  expense  will  be  based  upon  service 
chargeable  to  various  other  expense  accounts. 

P90  to  P910    ELECTRIC  LIGHT  AND  POWER  EXPENSE 

(Expense  Ledger) 

Debit  with: 

All  charges  for  Pay  Roll  and  other  Expenses. 

Credit  with: 

Proper  proportion  of  charges  to  various  other  Expense  Ac- 
counts. 

Balance: 

This  account  will  close  out  each  month. 


The  distribution  of  this  expense  to  other  Expense  Accounts 
will  be  based  upon  meter  readings  for  power  furnished,  and 
service  given  that  cannot  be  metered  will  be  prorated  to  ex- 
pense accounts  chargeable  therewith  on  a  basis  furnished  by 
Chief  Electrician  at  the  end  of  each  month. 


Acct. 

Symbol 

Account 

P110  to  P1112 

Debit  with: 

All  charges  for  Pay 

Credit  with: 

STEAM  EXPENSE 
(Expense  Ledger) 

Roll,  Fuel  and  other  Expenses. 

Proper  proportion  of  charges  to  various  other  Expense  Ac- 
counts. 

Balance: 

This  account  will  close  out  each  month. 

Note: 

The  distribution  of  Steam  expense  will  be  in  proportion  to 
steam  furnished  to  various  departments,  and  the  basis  for 
distribution  will  be  furnished  by  the  Master  Mechanic  at  the 
end  of  each  month. 


P120  to  P1226 


CRUCIBLE  DEPT. 


(Expense  Ledger) 
Debit  with: 

All  charges  for  Pay  Roll,  Productive  materials,  Fuel  and  other 

Expenses. 

Credit  with: 

Ingots  and  scrap  produced. 

Balance: 

At  the  end  of  each  month  the  total  cost  of  Crucible  Dept. 
will  be  charged  against  the  Product  turned  out  during  the 
month.  As  ingots  will  be  credited  to  Crucible  Dept.  during 
each  month  at  certain  fixed  prices  determined  in  advance, 
there  will  be  a  debit  or  credit  to  Cost  Adjustment  Account 
covering  the  difference  between  this  fixed  price  and  the  actual 
cost  as  established  at  the  end  of  the  month.  If  the  debit  or 
credit  balance  becomes  abnormal  a  revision  in  the  fixed  price 
will  be  in  order. 

Note: 

A  monthly  cost  and  expense  exhibit  will  be  made  out  covering 
the  month's  operation  of  Crucible  Dept. 


P140  to  P  1420 
P150  to  P1512 
P160  to  P1620 
P170  to  P1710 
P180  to  P1812 
P1820  to  P1830 
P190  to  P1910 
P200  to  P2010 


HAMMERS  Nos.  1-2 
HAMMERS  Nos.  3-4 
HAMMERS  Nos.  5-6 
16  IN.  ROLL  TRAIN 
10  IN.  ROLL  TRAIN 
12  IN.  ROLL  TRAIN 
8  IN.  ROLL  TRAIN 
ROLL  TRAIN  No.  2  MILL 


(Expense  Ledger) 
Debit  each  account  with: 

All  charges  for  Pay  Roll,  Productive  materials,  Fuel  and  other 
expenses. 

Credit  each  account  with: 

Productive  stock  and  scrap  produced. 


162 


BOOKKEEPING  AND  COST  ACCOUNTING 


Balance: 

At  the  end  of  each  month  the  total  cost  of  each  Hammer  or  Mill 
Dept.  will  be  charged  against  the  product  turned  out  by  each 
during  the', month.  As  the  product  from  the  departments  will 
be  credited  during  a  month  at  certain  fixed  prices  determined 
in  advance,  there  will  be  a  debit  or  credit  to  Cost  Adjustment 
Account  covering  the  difference  between  this  fixed  price  and 
the  actual  cost  as  set  up  at  end  of  month.  If  the  balance 
becomes  abnormal  a  revision  in  the  fixed  prices  used  will  be 
in  order. 

JVole: 

A  monthly  cost  and  expense  exhibit  will  be  made  out  covering 
the  operations  of  each  Hammer  and  Mill  Dept. 


Acct. 
Symbol 


Account 


Acct. 
Symbol 


ACCODNT 


P210  to  P2112    ANNEALING  AND  TREATING  EXPENSE 
(Expense  Ledger) 
Analysis  of  Entries 

Debit  with: 

All  charges  for  Pay  Roll,  Fuel  and  other  expense. 
Credit  with: 

Such  portions  of  this  expense  as  is  established  by  using  the 

arbitrary  rates  per  ton  adopted  to  cover  them  and  charge  to 

Cost  of  Sales  Account  H5  to  H12. 

Balance: 

After  charging  out  to  Cost  of  Sales  the  amount  based  upon 
tonnage  of  shipments,  the  balance  will  be  debited  or  credited 
to  Cost  Adjustment  Account. 

Note: 
Some  annealing  expense  will  be  chargeable  to  Wire  Dept.  and 
the  balance  to  Cost  of  Sales  H5.     The  remainder  of  the  expense 
will  be  distributed  to  such  division  of  Cost  of  Sales  Account  as 
work  was  performed  for. 

P220  to  P226       ROLL  TURNING  EXPENSE 

(Expense  Ledger) 
Debit  with: 

All  charges  for  Pay  Roll  and  other  expense. 
Credit  with: 

Proper  proportion  of  Roll  Expense  chargeable  to  various  sizes 

of  Rolls  handled,  this  amount  to  be  charged  to  the  Reserve 

for  Rolls  Account. 

Balance: 

This  account  will  close  out  at  the  end  of  each  month. 

Note: 
The  detail  of  Cost  on  New  Rolls  and  Repairing  and  Changing 
Old  Rolls  will  be  entered  on  a  card  record  for  each  roll. 


P230  to  P239        ENGINE  ROOM  EXPENSE 

(Machine  Shop) 

(Expense  Ledger) 

Debit  with: 

All  charges  for  Pay  Roll  and  other  expense. 

Credit  with: 

Proper  proportion  of  charges  to  other  expense  accounts  to 
which  power  is  furnished. 

Balance: 
This  account  will  close  out  at  end  of  each  month. 

\ote: 
The  distribution  of  this  expense  will  be  based  upon  data  as 
to  power  consumed,  furnished  by  Master  Mechanic. 


P240  to  P2424     MAINTENANCE  EXPENSE 

(Expense  Ledger) 
Debit  with: 

All  charges  for  Pay  Roll  and  other  Expense. 

Credit  with: 

Proper  proportion  of  Maintenance  Expense  chargeable  to  other 

expense  accounts. 
Balance: 

This  account  will  close  out  at  end  of  each  month. 

Note: 

The  detail  distribution  of  Pay  Roll,  General  Stores,  etc.,  charge- 
able to  this  account  will  be  kept  in  separate  detail  for  Machine 
Shop,  Pattern  Shop,  Blacksmith  Shop,  Bricklayers  and  Pipe 
Fitters,  so  that  proper  distribution  can  be  made  of  this  expense 
to  the  other  expense  accounts  chargeable  therewith. 

P290  to  P2918         INSPECTING  EXPENSE 

(Expense  Ledger) 
Debit  with: 
All  charges  for  Pay  Roll  and  other  expense. 

Credit  with: 

Proper  proportion  of  charges  to  the  various  classes  of  material 
on  which  inspection  was  performed. 

Balance: 

This  account  will  close  out  at  end  of  each  month. 

Note: 

The  distribution  of  this  expense  will  be  based  upon  Pay  Roll 
reports  of  time  spent  by  inspectors  on  the  various  classes  of 
material  inspected. 

P300  to  P3064         WIRE  DEPT.  EXPENSE 

(Expense  Ledger) 

Debit  with: 

All   charges    for    Pay  Roll,  Productive  materials,  and  other 

expenses. 
Credit  with: 

Productive  stock  and  scrap  produced. 

Balance: 
At  the  end  of  each  month  this  expense  will  be  closed  out  to 
Process  Stock  BIO  and  Finished  Stock  Bll  in  accordance  with 
the  Dept.  Inventory  and  shipment  reports. 

Note: 

A  monthly  cost  and  expense  exhibit  will  be  made  out  covering 
the  month's  operations. 

P400  to  P4024     OPEN  HEARTH  DEPT.  EXPENSE 

(Expense  Ledger) 

Debit  with: 

All  charges  for  Pay  Roll,  Productive  materials,  Fuel  and  other 
expenses. 

Credit  with: 

Ingots  produced. 

Balance: 

At  the  end  of  each  month  the  total  cost  of  Open  Hearth  Dept. 
will  be  charged  against  the  cost  of  producing  ingots  B3.  As 
ingots  from  the  Open  Hearth  Dept.  will  be  credited  thereto 
during  a  month  at  certain  fixed  prices  determined  in  advance 
there  will  be  a  debit  or  credit  to  Cost  Adjustment  Account 
covering  the  difference  between  this  fixed  price  and  the  actual 
cost  set  up  at  end  of  month.  If  the  balance  becomes  abnormal 
a  revision  in  the  fixed  prices  will  be  in  order. 

Note: 

A  monthly  cost  and  expense  exhibit  will  be  made  out  covering 
the  month's  operations. 


MODERN  ACCOUNTING  SYSTEMS  FOR  STEEL  WORKS 


163 


TRIAL  BALANCE— BALANCE  SHEET— INCOME 
STATEMENT 

The  following  are  typical  forms  of  trial  balance,  balance  sheet 
and  income  statement  for  a  steel  works.  The  titles  of  the 
accounts,  and  the  symbols  are  different  from  those  used  in  the 
foregoing  list  of  accounts. 


Balance  Sheet  as  of — Continued 


Trial  Balance  as  of 

Debits 


Balance  Sheet  as  of 


Credits 


Al 

Real  Eatate 

2,000 

00 

A  2 

Buildings 

8,000 

00 

A3 

Machinery 

20,000 

00 

A4 

Furniture  and  Fixtures 

2,000 

00 

A5 

Miscellaneous  Tools 

3,000 

00 

Bl 

Cash 

1,250 

00 

B2 

Petty  Cash 

250 

00 

B3 

Accounts  Receivable 

35.000 

00 

B4 

Bills  Receivable 

6,500 

00 

B5 

Prepaid  Insurance 

260 

B6 

Prepaid  Taxes 

B7 

Outside  Securities 

B8 

Cash  Advances 

1,500 

00 

B9 

BIO 

Branch  Accounts  Receivable 

2,450 

00 

CI 

Merchandise 

1  2,000 

00 

C2 

Raw  Materials 

20,000 

00 

C3 

Work  in  Process 

25,000 

00 

C4 

Finished  Product 

16,000 

00 

C5 

Supplies 

2,000 

00 

Dl 

Capital  Stock 

1 00,000 

00 

D2 

Surplus 

15.000 

00 

El 

Accounts  Payable 

25.500 

00 

E2 

Accrued  Taxes 

450 

00 

E3 

Accrued  Pay  Roll 

1,500 

00 

E4 

Income  Tax  Deductions 

E5 

FI 

Reserve  for  Depreciation 

5,000 

00 

F2 

Reserve  for  Bad  and  Doubtful  Ac- 

counts 

1,500 

00 

Gl 

Sales  of  Factory  Product 

135,000 

00 

G2 

Sales  of  Purchased  Goods 

75,000 

00 

G3 

G6 

Discount  on  Purchases 

47 

00 

G7 

Interest  Received 

35 

00 

G8 

Sales  to  Branches  (Consigned 

Goods) 

7,500 

00 

HI 

Cost  of  Sales,  Factory  Product 

1  22,000 

00 

H2 

Cost  of  Sales,  Purchased  Goods 

71,000 

00 

H6 

Claim  Adjustment 

900 

00 

H8 

Cost  of  Sales,  by  Branches  (Con- 

signed Goods) 

7,250 

00 

Jl 

Discount  on  Sales 

J2 

Sales  Dept.  Expense 

3,410 

00 

J3 

Claims  and  Allowances 

3,701 

00 

J4 

Freight,  Prepaid  and  Allowed 

500 

00 

Kl 

Profit  and  Loss 
Total 

561 

00 

366,532 

00 

366,532 

00 

Assets: 

Fixed  Assets: 

Real  Estate  and  Buildings 
Machinery,  Tools,  etc. 

10,000 
25,000 

00 
00 

00 
00 

30,000 

Total 
Less:   Reserve  for  Depreciation 

35,000 
5,000 

Total  Fixed  Assets: 

00 

Trought  Forward 
Current  Assets: 

Cash 
Accounts  Receivable 
Bills  Receivable 

35,000  00 
6,500     00 

1,500 

40,000 

260 

1,500 

00 

00 

00 
00 

30,000 

43,260 

75.000 

2,450 

00 

Total  Receivables 
Less:  Reserve  for  Bad  Ac- 
counts 

41,500  00 
1,500     00 

Prepaid  Insurance 
Cash  Advances 

Total  Current  Assets: 
Inventory  Assets 
Miscellaneous  Assets 

00 
00 
00 

Total  Assets 

150,710 

00 

Liabilities: 

Capital  Stock 

100,000 

00 

Surplus 

15,000 

00 

Current  Liabilities: 

Accounts  Payable 

27,000 

00 

Accrued  Taxes 

450 

00 

27,450 

Total  Current  Liabilities 

00 

Profit  and  Loss 

8,260 

00 

Total  Liabilities 

150,710 

00 

Income  Statement  for 


Ending 


Gross  Sales  to  Outsiders: 

Mill  Product 

135,000100 

Purchased  Goods 

75,000 

00 

210,000 

00 

Total  Gross  Sales  to  Outsiders 

Gross  Sales  to  Branches: 

Mill  Product 

5,000 

00 

Purchased  Goods 

2,500 

00 

7,500 

00 

217  500 

Total  Gross  Sales 

00 

Less:   Allowances: 

Returned  Goods 

1,500 

00 

Price  Adjustment 

1,000 

00 

Def.  Matl.  and  Work 

500 

Oil 

Business  Policy 

500 

(III 

Poor  Service 

201 

00 

3,701 
213,799 

00 

Total  Net  Sales 

00 

Cost  of  Sales: 

Factory  Product 

122,000 

00 

Purchased  Goods 

7  1 .000 

00 

Sales  to  Branches 

7.250 

00 

Claim  Ajustments 

900 

DO 

201,150 

00 

Gross  Profit  on  Sales                            % 

12,649 

00 

Deduct:   Selling  Expenses 

3,910 

00 

Net  Operating  Profit                            % 

8,739 

00 

Deduct:    Discount  on  Sales 

Charges  to  Profit  and  Loss 

561 

00 

561 

00 

Total  less  Deductions 

8,178 

00 

Add:    Discounts  on  Purchases 

47 

10 

Interest  Received 

35 

00 

Credits  to  Profit  and  Loss* 

! 

82 

DO 

Net  Profit  for  Period 

8,260 

00 

*  These  items  are  debits  and  credits  to  Profit  and  Loss  that  have  not  been 
charged  or  credited  to  manufacturing  accounts.  They  usually  represent 
adjustments  affecting  matters  not  directly  connected  with  operations. 


164  BOOKKEEPING  AND   COST  ACCOUNTING 

FORMS  USED  BY  MR.  WALTON  IN  STEEL  WORKS  AND  OTHER  ESTABLISHMENTS 

Form  Wl. — Schedule  of  Parts  and  Operations 

This  sheet  is  used  in  developing  a  routing  and  scheduling  system  in  a  heavy  hardware  and  tool  factory  where  the  first 
requisite  is  to  obtain  a  systematic  record  of  what  is  manufactured,  arranged  in  Bill  of  Material  form  and  containing  neces- 
sary data  as  to  operations  in  each  department  and  their  usual  sequence. 


From  NcMO-lOW-ll-SO-lS 

(Loose  Leaf  Binder  Sheet 
Size  t:  x  if  in.) 

>made    article 

UNIT  OF  QUANTITY                                                      SHEET             OF 

(50  lines.  6  dct  inch) 

Number 

MATERIAL  USED 

Bought 

Outside 
and  Price 

LIST  OF  OPERATIONS 

Economical 
Quantity 
to  Order 

REMARKS  AND 
FINISHED  WEIGHT 

of 
Piec 

!fl 

NAME 

OF  P 

ART 

Kind 

Size  and 
Qumntitr 

OPERATION 

Imaurk 

DopMNbere 

Done 

Form  W2. — Requisition  Card  (5  x3  in.) 


/       Pa.  Order  No. 

This  is  Req.  No. 

Subject               N. 

Received 

Origin 
DEPT.  12 

Issued  to  Dept.  13 

Date 

Supplier 

Needed 

Ordered  in  above 

Nam, 

Daw 

Date 

Wanted         (2  lines,  s  per  inch) 

iwe  Specifi  cations 

Remarks            3  lines 

Requisition  to  Purchasing  Dept. 


The  other  side  of  this  card  has  columns  and  ruling  (5  per 
inch)  and  headings  as  below: 


Date  Hurried 

Date  Promised 

Date  Hurried 

Date  Promised 

1 

Form  W4. — General  Store  Room  Card 
For  rough  and  unfinished  parts  carried  in  store  rooms. 


RECORD  OF  UNFINISHED   STORES 


Name 


Mat'I 


Sec. 

No. 


Symbol 


Assembly 


Weight 
Each 


No.  per  L'nit 


|  When  stock  is 
_Pcs.  [Down  to Pes. 


ICarry(Repairs_ 
For     ■< 
(Production pcs,    Border_ 


RECEIPTS  AND   DELIVERIES 


0.      Amount     Wbcn       Bal.  I-uo 
So.     | Ordered     Rcq"d       on  Order 


(22  lines,  4  pJr  inch )  [Size  5  i  s  in.) 


(Reverse  of  Card) 

ORDERS 

RECEIPTS  AND  DELTVERIES 

I    P.  0.    1    S.  0.1  Amount 
Dltfl     |     No.           No.       Order*! 

When 
Ecq'd 

EaL.  Due 
on  Onto 

Date 

P.  0. 
No. 

S.  0. 
No. 

Ant. 
Rec'd 

A-Tlt. 

Da  lance 

on  Hand 

X.27  lines,  £  per  inch 



Form  W3. — Requisition  for  Supplies  (5x3  in.) 


/  Form  06.  2M.  11  AP  00 
/       Contract  No. 

Structure  No. 

Pc  No.             ^y 

Origin 
DEPT.  12 

For  details  see 

Each 

Dept 
On 

Fnrwa 

""•" 

Money  Value  each 

MM 

Date 

Remarks 

Forwarded 

Material  O.K.  and  Req. Forwarded  to  Origin 

Date 
From 
12 

Date 
To 

73 

Date 

Material  Requisition—Supplies 

Form  W5. — In  and  Out  Stock  Card 
Designed  to  hang  in  front  of  bin. 

/  (Size  'hi  *  «  in.) 


/ 

Part  No. 

Q  (Brast 

t 

yelet ) 

Name 

Location 

BIdg. 

Floor 

Row 

Shelf 

Bin 

Condition 

Unit  of  Measure                                                    Minimum 

Date 

Received 

Date 

Issued 

Balance 

(■'3  Ui\cs\  Gfler  tnc 

u  Column 

he  ad  it 

I  L» 

■;■    tn  (  ruin 

•is 

cot 

tn 

tied  or 

rei'erse  side) 

III 

= 

MODERN  ACCOUNTING  SYSTEMS  FOR  STEEL  WORKS 


165 


Form  W6— Time  Study  Blank  for  General  Machine- 
shop  Use 


(Site  j  x  I  in.) 


TIME  STUDY 


Name  ol  Part 


Symbol 


Operation 


{6  lines,  6  per  inch) 


Type  of  Machine 
Machine  No. 


No.  Pes.  Machined 


Kind  of  Steel 


(23  lines,  6  per  inch) 


Speed      Feed         Cut     pie: 


Total  Time  in  Minutoe 


Total  Gang  Hours  _ 


(iO  lines) 


Name  of  Operator  or  Leader 


Time  Study  N_Oj_ 
Approved  by 


Schedule  No. 


Form  W7. — Combination  Clock  and  Time  Card 
Individual  job  tickets  are  preferable  to  these  one-day  time 
cards,  but  for  some  classes  of  work  this  card  is  well  arranged. 


f- 

0 
X 

X 

H 

(St»  5X  *  3*  in.)          DAILY  TIME  CARD 

|>f.pri                                                                                                          Time   From 
Week  Ending                                                                                             Rate 

To 

Order  No. 

Name          Pattern  No. 

Operation 

Hours 

Pieces 

Amount 

l« 

ines  *  per  inch) 

The  reverse  of  the  card  with  columns  for  the  clock-stamp 
record  is  as  below. 


Time 

Hours 

Rate 

Amount 

Regular 

Overtime 

*j  (meal               I 

i 

Morning 

Afternoon 

Overtime 

In 

Out 

In 

Out 

In 

Out 

i 

~ 

(?  lines 

i per  inch) 

O.K. 

Form  WS—  Job  Time  Ticket  (Size  5x3  in.) 
Tickets  of  the  same  size  and  style,  printed  on  different- 
colored    paper,    are   used   for    different    departments.     The 
printing  varies  with  the  kind  of  work  done. 


^/contract  no. 

STRUCTURE  NO. 

PC.  NO.              N. 

MONEY  VALUi: 

DEPT. 
8 

MACHINE 
NO. 

OPERATION 

HOURS 

QUARTERS 

DATE 

MAN  NO. 

REMARKS          (6  tinea,  s  per  inch) 



Samples  of  the  printing  on  some  other  cards  are  shown 
below.  These  are  group  cards,  used  when  more  than  one 
man  works  on  a  single  job. 


/        CHARGE  NO. 

DATE 

OPERATION 

DEPT. 

37 

MACHINE 
NO. 

MONEY  VALUE 

No.  of  Pieces 
in  Lot 

No.  Pes.  Fin- 
ished this  day 

Weight  ol 
Pes.  Finished 

HOURS 

Ol' AR  TERS 

REMARKS 

(5  lines) 

' , , 

TOTAL 
TIME  O.K.                                                      TIME  FOR  DAY 

HOURS 

QUARTERS 

GROUP  CARD                     (See  other  side)                               D-S-G--FORGE  SHOP 

The  reverse  of  this  card  is  headed  as  be'.ow: 


/ 

Man  No 

Name 

Time  for 
This  Card 

Total  Time 
lor  Day 

Rate 

Money 
Value 

Hrs. 

Qrs. 

Hrs. 

Qrs. 

Smith 

Helpers 

1           ' 

Department  No.  29  has  the  same  card  except  that  the 
word  "  Leaders "  is  printed  instead  of  "  Smith."  Dept. 
No.  47,  Sheet  Iron  Dept.,  is  similar  except  that  the  third  line 
is  as  follows: 


HOLES  IN  EACH         TOTAL  HOLES 
PIECE  PUNCHED 


HOURS      I  QUARTERS 


and  on  the  reverse  side  "  Punchers  "  is   used  instead  of 
"  Leaders."     An  individual  time  and  job  card  for  the  same 

department  has  printing  as  follows: 


Form  W9. — Job  Time  Ticket 


/ 

25.1 

Date 

Man  No. 

201G 

Name 
J.  Paris 

Money  Value 

1 

Operation 

Drilling 

Dept. 

47 

Machine  No. 

B2G 

Hours 

Quarters 

1 

No.  Pml  Fin- 
ished ITiifl  D..J 

Total  No.  of 
401 

Size  of  Holes 
l" 

Ihfukiuss  ol 

Work 

Rate 

Remarks 

{s  lines) 

D-S-A--SheetIron  Dept. 


Particular  attention  is  called  to  the  value  of  the  information  that  is  obtained  from  Form  W9  with  a  minimum  of  clerical 
work.  It  not  only  credits  the  workman  with  7|  hours  time  and  charges  order  No.  25.1  with  the  same  amount  of  time,  but 
it  shows  that  in  that  time  on  machine  £26  451  holes  1  inch  diameter  were  drilled  in  metal  I  inch  thick.  If  this  latter 
statement  is  posted  on  a  card  headed  Drilling  1-inch  Holes  it  forms  a  basis  for  estimating  the  cost  of  future  work  in  which 
the  drilling  of  holes  is  an  important  element.  A  drawer  containing  cards  for  each  kind  of  operation  that  can  be  done  on  each 
class  of  tool  is  a  most  valuable  aid  to  the  estimator  in  making  predeterminations  of  costs  of  any  machine  or  operation. 


166 


BOOKKEEPING  AND   COST  ACCOUNTING 


Form  W10. — Pay-off  Sup 


{Sizes  xi  in.)  pAY    OFF  SUP 

CASHIER  please  pay       .191. 

Man  Ncw___„„„„_Name «_____—. 

Worked  in  Dept 

Wages  due  on  last  pay  period  ending «__•_ 

Wages  due  this  pay  period  ending ——■„■•. 

Total  earnings ..... . .......... 

Less  deductions ...... 


Net  amount  due 


Head  Timekeeper 


Received  payment  for  all  wages  due  to  date 


Witness 

NOT  NEGOTIABLE 


Form  Wll- 

-Typical 

Pre 

mium  Ticket 

{Size  l  x  6  in.) 

PREMIUM           WORK 

Operation 

Premium 
Limit 

Order  No. 

Name  of  Part 

Symbol 

Number  Pieces  Finished 

Def. 
Pes. 

SUMMARY 

Date 

Pes. 

Hours 

Date 

Pes. 

Hours 

(« 

lines  & 

per  inc. 

0 

Premium  Time 

Time  Saved 

Bonus  Time 

Rate 

Bonus  Arm. 

Figured 

Checked 

Totals 

Credited 

Key  Number 

Name 

O.  K.  f< 

>r  Pieces  Finished 

NOTE:-  All  Records  on  these  ticke 
to  be  made  by  the  Timekeeper,  ant 

Inspector 

left  at 
done 

machin 
until  It 

e  wher 
s  finish 

i  work 

•d. 

s  beii 

E 

Timekeeper 

The  reverse  side  of  the  card  has  the  following: 
PREMIUM  SYSTEM  REGULATIONS 

1.  Each  employee  shall  be  guaranteed  his  regular  day's  wages 
for  all  time  at  work. 

2.  A  limit  once  set  and  worked  upon  shall  not  be  reduced 
except  through  the  introduction  of  new  methods  in  process  of 
manufacture. 

3.  No  limit  shall  be  placed  upon  the  amount  of  premium  an 
employee  may  earn  and  receive;  large  premium  earnings  on  the 
prescribed  limits  shall  be  desired. 

4.  All  premiums  earned  shall  be  paid  on  regular  pay  days  of 
the  Company. 

5.  This  card  is  for  use  of  the  men  during  the  progress  of  a 
job,  and  shall  be  left  at  the  Operator's  Machine.     Time  should 


be  checked  daily  by  workman,  and  errors  rectified  with  the 
Timekeeper  and  Foreman  before  cards  are  forwarded  to  the 
Office.  No  claim  for  errors  in  time  can  be  allowed  after  card 
is  sent  in  for  payment. 

6.  All  defective  parts  must  be  reported  to  Foreman  imme- 
diately on  discovery.     Day  rate  only  will  be  paid  on  such  parts. 

Form  W12. — Production  Card  (see  holder,  on  next  page) 


Card  No,    %73 

Part  No.      1384                       Chopper  #  10  Body 

Date 

June  1,  1916 
"A" 

Find  in              46 
Store  in 

Pieces  in  Track 

600 

Issued  by 

Job  No. 

No. 

NATURE  OF  JOB 

Pea.  on  Gate-2 

Opertt  Ito'b 

No. 

Prion 
per  100 

Pij 

for 

10310 

4 

Moulding 

ion 

11 

Grinding 

672 

10. 

500 

1042 

11 

Belting 

896 

9. 

498 

8479 

1 

Boring 

754 

17. 

496 

2480 

7 

Turning  Out  Side 

692 

6.5 

496 

92 

7 

Drill  for  CI.  Screw 

688 

8.5 

496 

Size  of  Card  *X  *  6  '""■ 

S*  Une$,  8  per  inch 

>od  pieces 

Cooditioo 

Transferred  from  Card  No. 

%      Inspector 

Job  v.. 

Last 

Operation 

Job  ISo. 

H  here 

Defective 

X 

o 

REMARKS 

and 

Foreman's  Signature 

Loss 

Quan- 
tity 

Price 
per 
Fleet 

Total 

1042 

1042 

/ 

Belted  Out 

2 

2479 

2479 

• 

Missed  Boring 

■J 

Box 

h  of  Card 

9K 

*x 

i» 

/9  lines*  Sper  inch 

Form  W13. — Shop  Order  Card.    Suitable  for  machine  shops. 


'{Size  3%  xlin.) 


Order  No. 


Date  Issued 


Date  Wanted 


Make 


— Pieces.         For  Dept. 


Symbol_ 


Operation 


Plane 


Shape 


No.  Pieces        No.  Pieces 
Finished  Defective 


Inspected 

by 


13  Additional  lines,  &  per  inch,  with  prin 
Bore,  Turn,  Face,  Mill,    ScrSw  Macfu,  Drill 


Polish,  Erect  or  Fit,  and  four  blank  space; . 


Key  No. 


side  heads, 
Spindle, 


THIS  TICKET  MUST  BE  CAREFULLY  PRESERVED  AND 
SENT  TO  COST  DEPT.  WHEN  WORK  IS  FINISHED. 


{Reverse  Side) 

Pieces  Delivered 

To  Store  Room 

To  Erecting  Floor 

Date 

No.  Pes. 

Date 

No.  Pes. 

S  tines  i  per  inch,  -M  in  blank  space  at  bottom 

MODERN  ACCOUNTING  SYSTEMS   FOR  STEEL  WORKS 


1(17 


Card  No.     4.  7  g  2- 


Data    i^rfetit-^ /JVC 


Part   Nt'B2  MILL   #5    REV. GRAN. GRINDER 

Find  in     &b?  $/S~0      "       } .., ,    [i   rnicl 
Store  in  i£  /*  X/04*KnrtM 

Slore  and  report  A'  '■"•R<™~ ■  *' 

Issued  by         .  y  ■?  , 


JOB  Ho.    ""■' 


NATURE  OF  JOB 

PCS. ON    GATE-2 


!      Ih 


1 1  0206    1**M0ULDING 

ISUgia;  LAPPING  1ST  MAN 
|AI6U8l8f*LAPPING  2ND  MAN 
|B|8Uai8|  LAPPING  3RD  MAN 
Il7l2l|20     WASHIMG    AFTER    LAPPING 


^A5" 


>•■■ 


INSPECTING    JOB  #1378 

7 

Form  W15. — Operation  and  Part  Cost  Card 

Enabling  any  combination  of  costs  to  be  obtained  by 
gathering  together  the  required  cards  covering  a  particular 
assembly,  a  complete  engine  or  machine,  etc. 

Where  interchangeable  parts  are  used  on  different  sizes 
of  engines  or  machines  it  saves  duplication  of  cost  cards. 
An  entire  cost  system  has  been  introduced  successfully 
on  this  card  basis  in  plants  making  hundreds  of  different 
types  and  sizes  of  engines,  pumps,  etc.  (D,  day  work; 
P,  piece  work.) 


{Size  «J4  x  7  in.  Printed  on  both  aides) 
Part                                                                                    Symbol 

Used  on                                                                 Wt.  Each 

Mnf 

Operation 

{Five  more 

touble  column;  i 

No. 
Made 

Cost 

Each 

No. 
Made 

Cost 
Each 

No. 

M...1.- 

Cost 
Each 

No.  1  Cost 

M.i, If          1       1  I: 

D 

P 

D 

(liepel 

tfor  s  ifmcs,  tieo  lines 

for  totals,  the 

%  repeat  c 

P 

more  times  an'd  two  lines  for 

totals) 

1 J 

I 1 -I ] 

JJ 

Form  WIG. — Comparative   Record  of  Costs  of  Opera- 
tions and  Parts  at  Different  Dates 


Symbol     B42G                    Part   A                |    Wt.  4.5  lbs.              Mt'l    CaBtlron 

Date 

1-1 .- .-.- 

i/s/is 

4/11/15 

Order  No. 

Wort 

2891 

Utile 

V.",'. 

... 

Nnd. 

ts, 

So 

v. ,:. 

viV'i'.. 

Con 

No 

\:„i: 

Co»1 

1  .. 

',:  ,'i'.. 

K-..n 

No 

Vi.'l, 

CmI 

r ,. ! 

No.  I  Co.i 

~           D.W. 

Turnp-.«. 

1HIJ 

,02 

H)!l 

.ll'J 

Drill  D-T- 

U            P.N. 

1.1,1 

.on:! 

100 

,003 

II.  \*'. 

98 

.011 

Ml"    P.iv. 



.IBS 

R         1tmV' 

P.W. 

97 

.":: 

'IS 

.025 

Key    D.W. 
Seat    P.rt. 

97 

CBS 

'.is 

■ 

1 i 1 

(8  lines  for  i 

oth 

Size  6K  x  iX 
t~r  operationi 

in.  Printed,  on  both  sides 
.  D.W.,Day  Work.  P.W., 

Piece  Work.) 

Total  Cost 

97 

1261 

98  [lH8 

Fig.  10. — Walton's  Card  Holder. 
(See  description  on  page  151.) 

Form  W14. — Pattern  Cost  Card 
(Issued  by  Supt.  of  Pattern  Shop.) 


(Sizes  1  x  i<4in.) 
Symbol 


Date  Issued 


Key  No. 


Note:-Send  this  stub  to 
Cost  Department  when 

issued. 


PATTERN  COST  CARD 


Symbol- 


Workman  _ 
KeyJS'o- 


For  Dept 

_D  ate 191 


Material  Used 


Total  Hours_ 
Rate 


Send  this  to  Cost  Dep  t. 
the  day  pattern  is  finished 


Cost  of  Material,  $_ 
Cost  of  Labor,  J_ 
Expense,  $  _ 

Total  Cost,  S_ 


Form  W17. — Request  Sent  to  Foreman 
To  explain  why  costs  of  operations  have  increased. 


(Size  7  *  6%  m.)  COMPARATIVE  LABOR  REPORT 
Date 19 Symbol. 


Part. 


Operation. 


Mr. 

Please  note  Labor  as  given  below. 


°«e    "igo"!^         Name  of  Workman     \  JjZ'J     **£,     *"«l  E.Vhl    *»"'" 


(3  lines,  %  in.  spacing) 


Remarks 

Previous  Records  show 

(J  lines)     1 

('  in!  space) 

Cost  iie|.t. 

168 


BOOKKEEPING   AND   COST  ACCOUNTING 


Form  WIS. — Material  Used  from  Stock 
Record  of  structural  shapes,  bars,  etc.,  in  plants  where  a  well-arranged  stock  yard  system  is  in  effect. 


(Silt  -«  x  7  in 
Req.  No. 

.) 

MATERIAL  USED   FROM 

STOCK 

>. 

Drawing  No...               _ 
Shop  Bill  Page 
Sketch  No. 

Date                                                                 19 

Order  N 

MATERIAL  WANTED 

Cut  From 

Ret'd  to  Stock 

Weight 

of 

Material  Used 

Price 

Amount 

Item 
No. 

No. 
Pieces 

Shape 

Section 

Length 

No. 
Pieces 

Length 

No. 
Pieces 

Length 

Ft. 

In. 

Ft.     |     In. 

Ft. 

In. 

(/-  lines,  %  in.  spacing) 

_ 

1 

' 

1 

Form  W19. — Inventory  Ticket 

This  ticket  reduced  the  work  of  taking  and  recording  an      accounted  for.     The  details  will  of  courses  vary  a   the  class 
inventory.     The   tickets  are  numbered  consecutively  on  a      of  material  varies, 
numbering  machine,  so    that  every  ticket  issued  may  be 


(Size  ?!-i'x  $%  in.) 

No.   17 

INVENTORY  TICKET 

Symbol 

No.  Pieces 

Bin  No.                              Room  No.                                   Depr. 

Drawing  No. 

Rough 

KIND  OF  MATERIAL 

Full  Desc.  of  Part 

Steel 

Finished 

U  lines,  H  in.  space) 

Ma..'!  . 

Iron 

Part  finished 

(Give  operations  below) 

...II.   .T 

■Mild 

Steel 

Cold 
Rolled 

Malleable 

Plate 

Yellow 

Brass 

PART    OF   MACHINES 

\S  eight  Each 

Tire 
Plate 

Red 

Brass 

Steam 
Engine 

Hull'r        J    Alf 

Total  Weight 

Fire 
Box 

Bronze 

Separator 

Feed.           |   Clov. 

Quantity 

Struc 

.-.I.  >.].L-a 

Misc.  Mat'ls 
Iron  Pipe 

Lull, 
Feeder 

Wattr 

Hi;cn 

Size 

Galvanized 

Sheet 

Brass 

Ti.lt.' 

Hand 

Feeder 

ou 

Wagon 

Ulmifc 
Sheet 

Drop 

Bulkr 

B 

TJlue  Antic. 
Sheet 

Rolled 
Bmm 

Grain 
Grader 

Oil 

C 

W  roupbt 

Wind           J  Sep. 

Eng. 

E 

Special    t  (QiVe  kind) 
Materials!  l' 

Stack.         |  Hull. 

F 

Lumber  (Give  grade  and  kind) 

Special 
(Givo  name ) 

Counted  by 

(i  lines) 

Count  Checked  by 

l\<    St.  'par.itr  Mi  n't-,  f.>r  1  inished,  Partly  Finished,  and  Kongh  Parts 

Form  W20. — Requisition  for  Small  Tools 


(Sizesxxtxin.)              REQUISITION  ON  SMALL  TOOL  DEPT.  FOR  TOOLS  OR  EXCHANGE 

Note:  Foreman  must  sign  requisition  and  see  that  proper  description  is  given  of  tools  required . 

Sec. 

Dept.  No. 

Time  Ch'k 

Name 

Page  No.    Tool  Book 

(Are  Tool  Checks  Required    Yea  or  No  ) 

Files 

Drills 

Taps 

Dies 

Miscellaneous 

Bin  No. 

Quan.    |  Length 

Style 

Out 

Bin 

■<uw.       Size 

Shank  |      Bin 

Quon.  1  Sue      Pitob 

Bin 

Liuan. 

Size 

Pltoh 

Style 

Bin 

(W 

'nes,  *  per  inch) 

— 1 

— — 

Brush 

Lock 

Oil 

Can 

File  Handles 

Hack  Saws 

Raw  Hide  Mallets 

Chisels 

Flat 

Cope 

Goui^e 

Diamond 

Large      1  Medium 

Small 

B-             10' 

12" 

No.  1     ]    No.  2 

No.  3 

No.  4 

No.  6 

AmL 

Siie 

Amt. 

Siae 

Amt.            Site 

An.t.      i      SUo 

Quota 

Bin  No. 

For 

eman 

i 

FOR 

EMA 

N'S 

c: 

ov^ 

r,  To  be  returned  by  Small  Tool  Dept. 

MODERN  ACCOUNTING  SYSTEMS  FOR  STEEL  WORKS 


169 


/  Form  W21.— Tool  and  Pattern  Requisition 

This  blank  has  been  introduced  in  many  shops  when  it     and  making  new  equipment,  which  if  left  to  the  foremen 
was  necessary  to  use  some  judgment  in  authorizing  repairs      and  superintendents  often  caused  needless  expenditure. 


Factory 

[ffize«H  x  7  in.) 

TOOL  AND  PATTERN  REQUISITION 

Dept.                                                                                            Date 
Dept.                                       Account  to  be  charged 

Order  No. 

191 

To 

From 

(.:•  tines,  f  in  apace) 

Mnl'l 

Total 

Make  (4-  lines) 

Required  for  use  on 


Present  Cost  of  Work  on  one  piece 
Aprox.  pieces  made  per  month 


Expected  saving  by  use  of  new_ 
Aprox.  monthly  saving  if  new 


per  piece_ 

is  made 


Estimated  Cost  of  Tool  -  Labor 

Remarks U  lines) 


(Factory 

Approval  required  if  labor  estimated  J  Manager 
is  over  $10.00 


_J  Shop 


Approval  required  if  labor  estimated  \  Supt. 
is  over  $2.00  and  up  to  $10.00 


Foreman  or  other  person  originating 
this  requisition 


NOTE:-Af(er  proper  approval  of  this  requisition  it  must  be  sent  to  Factory  Accountant  for  entry  and  assignment  of  Order  No. 
No  work  must  be  done  on  this  requisition  until  receipt  by  Shop  of  order  authorizing  it  from  Accounting  Department. 


[The  reverse  s  idc  of  this  blank  is  as  below. ) 


COST  OF  THIS  JOB 


Pay  Period  and  Item 


120  lines,  ^M  per  inch) 


Form  W22. — Suggestion  Card 

This  form  was  successfully  used  in  many  shops  in  system-  (The  other  side  of  this  sheet  is  blue  cross-section  or  "  qua- 

atically  caring  for  suggested  modifications  in  design  when      drille  "  ruling,  4  lines  to  the  inch.) 
development  work  was  under  way. 


{Size 8%  x  tin.,  ruled  lines  *  in.  space)                              SUGGESTED  MODIFICATION  IN  DESIGN 

To  Engineering  Dept.,                                                                 From  Dept., 

Date 

191 

We  would  suggest  the  following  changes  in  the  Material          Ifor  Symbol 

Names  of  Part                                                                    Reqd  Finish* 

1       Used  on 

The  changes  proposed  are  as  follows:                    (5  lines,  A  per  inch) 

1 - 1 

| . 

|       The  advantages  to  be  gained  by  the  change  are 

{8  lines,  iper  inch) 

\ 

We  have  on  hand  at  this  date 


pieces  of  this  part 


The  value  of  these  parts  on  hand  is 


Scrap  value  will  be 


Loss  if  present  stock  becomes  obsolete 


)  Change     approved 
"  i  by  Engineering 
Department 


Supt.  of  Dept. 


NOTE:- Mate  aketchea  on  other  aide.  Nochanjcs  to  be  adopted  until  firEt  accepted  and  approved  bv  the  Chief  Engineer. 


SCHEDULE  OF  ACCOUNTS  OF  ANOTHER  STEEL  WORKS      designed  for  the  Pennsylvania  Steel  Works  in    1905.     The 
The  author  is  indebted  to  Mr.  Gershom  Smith  for  a  copy      original  schedule,  of  which   this  is  a  revision,  was  designed 
of  the  schedule  of  accounts  (shown  on  page  170)  which  he      by  him  in  1902. 


170 


MODERN  ACCOUNTING  SYSTEMS  FOR  STEEL  WORKS 


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O      -h      N? 


CHAPTER    XVII 


FOUNDRY  COSTS— COST  OF  COAL 


COST  FINDING  IN  AN  IRON  FOUNDRY 

A  brief  statement  of  some  of  the  difficulties  met  with  in 
obtaining  foundry  costs  will  be  found  on  page  71. 

The  results  of  one  month's  operation  of  a  certain  foundry  are 
given  in  the  tables  below.     (See  page  173.)     ' 

The  system  shown  in  Mr.  Walton's  tables  may  be  quite 
satisfactory  for  some  foundries,  where  the  castings  are  made 
iiot  for  sale  as  castings,  but  to  supply  the  machine  depart- 
ments of  a  large  factory,  where  the  sizes  are  generally  small 
and  the  output  fairly  uniform  from  month  to  month,  where  the 
daily  wages  do  not  greatly  vary,  and  where  no  crane  service, 
heavy  molding  machines,  or  pit  molding  are  needed.  The 
final  figure,  S46.58  per  ton,  is  a  sufficiently  close  approxima- 
tion to  "factory  cost,"  at  which  the  castings  are  to  be  charged 
to  the  manufacturing  departments  in  which  they  are  used,  or 
valued  in  the  inventory.  Monthly  statistical  sheets,  showing 
the  monthly  variation  in  the  several  expense  items,  furnish  a 
check  on  undue  advances  in  these  items  and  indicate  where 
economies  may  possibly  be  effected. 

For  a  jobbing  foundry,  however,  making  both  large  and 
small  castings,  using  high-priced  skilled  labor  on  some 
products  and  low-priced  labor  on  others,  where  some  castings 
require  crane  service,  pit  molding,  power  for  chipping  and 
cleaning,  and  others  do  not,  and  both  large  and  small  castings 
are  sold  at  a  small  margin  of  profit,  under  intense  compe- 
tition, the  average  cost,  $46.58,  is  an  unsafe  figure  to  rely  on 
in  fixing  selling  prices  or  in  making  inventory  valuations. 

In  such  a  foundry  the  first  thing  to  be  done  in  obtaining 
costs  is  to  make  a  strict   separation   between   the  cost  of 


melted  metal  in  the  ladle  and  the  cost  of  making  this  metal 
into  castings  ready  for  delivery.  The  latter  cost  is  to  be 
subdivided  into  direct  labor  and  indirect,  or  burden,  costs, 
and  each  of  these  is  to  be  classified  according  to  the  different 
kinds  and  sizes  of  castings  and  the  conditions  under  which 
they  are  made. 

The  variable  conditions  are: 

Heavy,  light  and  medium  castings. 

Plain  and  cored  castings;   dry  sand  and  green  sand. 

Bench,  floor,  pit,  and  machine  molding. 

Cleaning  by  hand  or  by  machine. 

Flasks,  wood  or  metal,  snap  flasks.     Depreciation  of  flasks. 

Crane,  buggy  or  hand  transport. 

Labor,  highly  skilled  or  ordinary;  day  work  or  piece  work. 

Number  of  flasks  put  up  by  a  man  per  day;  or  tons  made 
per  man  per  day. 

Risk  of  spoiled  or  rejected  castings. 

Supervision  and  inspection  on  different  kinds  of  castings. 

The  direct-labor  cost  of  any  casting  or  group  of  castings 
may  be  determined  in  the  usual  way  by  time  and  job  tickets 
for  each  production  order,  but  the  proper  allocation  of  the 
total  monthly  or  yearly  burden  to  the  several  classes  of 
castings  will  require  careful  consideration  of  all  the  above 
variable  conditions  together  with  time  studies  of  certain 
representative  castings  or  groups  of  castings. 

Making  some  assumptions  as  to  the  cost  of  melting  we  may 
make  a  restatement  of  Mr.  Walton's  figures  in  such  a  form  as 
to  show  separately  the  melting  cost,  and  the  cost  for  direct 
labor,  indirect  labor  and  other  expenses  outside  of  the  melting 
department,  as  follows: 


Monthly  C 

OST. 

Cost  per  Ton   of  Castings 

Melting 

Other  than 
Melting 

Total 

Melting 

Other  than 
Melting 

Total 

General  factory  expense 

Repairs,  maintenance  and  supplies 

Cupola  labor 

Direct  labor,  molding 

core-making 
Productive  labor  charged  to  burden 

Total  of  the  above  items 
Metal,  fuel  and  flux 

Net  cost  366.6  tons  good  eastings 

498.81 
391    13 
291.83 

395  63 

1723  84 
394.79 

4591    20 
1399  03 
1875  63 

2222.65 
785,92 
291.83 

\      5990.23 

2271 .26 

1    36 

1    07 
.80 

1.08 

4.70 
I.OS 

12.52 
3.81 

5    12 

6  06 

2   15 
,0 

J  16.33 

6  20 

1577.40 
5512.15 

9984 . 49 

11,561    89 
5,512    15 

4.31 
15.04 

27.23 

31.54 
15  04 

7089  55 

9984  49 

17.074.04 

19  35 

27.23 

46  58 

The  total  burden  outside  of  the  melting  department  is 
$3994.26.  Dividing  by  the  direct  labor,  $5990,  gives  66.7 
per  cent  as  the  average  percentage  of  burden  to  direct  labor. 

Assuming  25  days  per  month,  10  hours  per  day,  or  250  hours 
per  month,  and  dividing  this  into  $5990  gives  $23.96,  say  $24  per 
hour,  or  the  wages  of  80  men  at  an  average  of  30  cents  per  hour. 

80x250=20,000  man-hours  per  month.  Dividing  this 
into  the  burden  $3994,  say  $4000,  gives  an  average  burden 
rate  of  20  cents  per  man-hour. 


The  product  was  366.6  net  tons,  or  733,200  pounds.  Divid- 
ing this  into  $3994  gives  0.545  cents  per  pound,  or  $10.90 
per  ton. 

The  average  total  cost  per  ton  may  thus  be  stated  as  follows : 


Metal,  fuel  and  flux 
Burden,  melting  department 
Direct  labor,  molding,  casting,  etc. 
Burden,  other  than  melting 


$15  04 

4  31 

16.33 

10  90 


119.35 


171 


172 


BOOKKEEPING  AND  COST  ACCOUNTING 


If  the  castings  were  divided  into  classes  according  to  the  con- 
ditions under  which  they  were  made,  we  might  find  that 
both  the  direct  labor  and  the  burden  might  differ  in  some 
cases  as  much  as  from  50  per  cent  below  to  100  per  cent  above 
the  average,  so  that  a  revised  statement  of  costs  might  read 
as  follows: 

Cost  of  Different  Clabseb  of  Castings,  Per  Ton 


Melting  Cost 
Direct  Labor 
Burden 

Total 
Cost  per  Pound,  Cents 
Burden  per  Pound,  Cents 
Burden  per  man-hour,  Cents 
Burden  Per  Cent  of  Direct  Labor 


Minimum 


$19.35 
8  17 
5.45 

$32.97 
1.69 
0  27 
10 

33.3% 


Maximum 


$19  35 
32.66 
21.80 

$73.81 
3.69 

1    09 
10 

133% 


Average 


An  ideal  cost  system  for  a  foundry  is  one  in  which  the 
costs  are  predetermined  as  far  as  possible,  by  having  standard 
piece  work,  or  task  and  bonus,  rates  for  all  direct  labor,  and 
a  standard  schedule  of  burdens  for  all  the  different  classes  of 
castings.  Burden  account  should  be  charged  with  all  the 
monthly  expenses,  including  reserve  for  depreciation,  interest 
on  investment,  taxes,  insurance,  repairs,  supervision  and  other 
indirect  labor,  etc.,  and  credited  with  the  sum  of  all  the 
standard  burdens  which  have  been  charged  to  the  cost  of 
finished  product.  The  balance  of  burden  account  is  unearned 
or  over-earned  burden,  which  at  the  end  of  the  year  is  to  be 
charged  or  credited,  as  the  case  may  be,  to  Profit  and  Loss. 

COST-FINDING   IN   BRASS,   BRONZE,   AND   ALUMINUM 
FOUNDRIES  * 

Method  of  Departmental  Divisions 

The  natural  division  into  which  the  Manufacturing  Expense 
of  the  jobbing  brass  foundry  falls  are:  Melting,  molding, 
coremaking,  cleaning,  inspection,  shipping,  pattern  making, 
machining,  general.  They  are  subsidiary  departments  of  the 
foundry.  The  inspection  and  shipping  costs  may  be  com- 
bined in  summarizing  the  departmental  costs,  for  easy  com- 
parison from  month  to  month.  This  plan  of  collecting  the 
cost  data  makes  possible  the  detection  of  variations  in  the 
costs  of  each  department. 

The  following  items  make  up  the  costs  of  casting: 

Metals  (A) 

Department 
or  (  lass  No. 

Al.  Purchased  metals:  such  as  copper,  tin,  lead,  zinc,  phos- 
phor, purchased  scrap. 

A2.  Foundry  scrap,  resulting  from  heads,  gates,  pickings, 
and  defective  castings. 

Manufacturing   Expense   (B) 
Bl.  Melting:  labor  (B10),  supplies  (Bll),  overhead  (B12). 
B2.  Molding:  labor  (B20),  supplies  (B21),  overhead  (B22). 
B3.  Coremaking:    labor  (B30),  supplies  (B31),  overhead 
(B32). 

*  Condensed  from  Service  Bureau  Bulletin  No.  4,  1917,  issued  by 
the  Committee  on  Foundry  Methods  of  the  National  Founders' 
Association. 


Department 
or  Class  No. 

B4.  Cleaning:  labor  (B40),  supplies  (B41),  overhead  (B42). 
B5.  Inspection:    labor    (B50),   supplies    (B51),   overhead 

(B52). 
B6.  Shipping:  labor  (B60),  supplies  (B61),  overhead  (B62). 
B7.  Pattern  Making:  labor  (B70),  supplies  (B71),  overhead 

(B72). 
B8.  Machining:    labor   (B80),   supplies   (B81),   overhead 

(B82). 
B9.  General:  labor  (B90),  supplies  (B91),  overhead  (B92). 

Buildings  and  Equipment  (C) 

CI.  Buildings:  labor  (C10),  supplies  (Cll),  overhead  (C12). 

C2.  Equipment:    labor  (C20),  supplies  (C21),  overhead 
(C22). 

Selling  Expense  (D) 

Selling  expense  may  cover  salesmen's  salaries,  advertising, 
traveling,  interest,  discounts,  outbound  freights,  etc.,  as  the 
management  may  decide.  Overhead  is  not  charged  to  Selling 
Expense. 

Metals.  Al  metals  carry  their  original  purchase  prices 
until  each  lot  is  exhausted;  or,  until,  at  the  close  of  any  in- 
ventory period  it  is  found  advisable  to  write  the  prices  down. 
A2  metals  are  readjusted  to  the  prevailing  market  value  of 
metals  at  each  inventory  period,  monthly  or  quarterly. 

The  most  important  feature  in  handling  non-ferrous  metals 
is  the  recognition  of  the  loss  which  occurs  in  melting.  The 
following  example  illustrates  the  actual  condition: 


Lbs. 

Lbs. 

Metal  charged 
Good  castings  made 
Gates,  risers,  scrap,  etc. 
Dross,  pickings,  etc. 
Loss  by  difference 

20.000 

10.000 
8,000 
1,000 
1,000 

Total 

Loss,  %  of  metal  charged 
Loss,  %  of  good  castings- 

20,000 

20,000 
5% 
10% 

The  metal  lost  in  melting  must  be  carried  by  the  pound 
of  good  castings  produced  when  making  prices.  In  the  case 
of  manganese  bronze,  the  yield  of  good  castings  is  often  as 
low  as  25  per  cent  of  the  charged  weight,  because  of  the  heavy 
shrinkage  and  the  need  of  long  runners.  The  furnace  loss 
may  run  7h  per  cent,  which  brings  the  melting  loss  on  a  25 
per  cent  yield  to  30  per  cent. 

Manufacturing  Expense.  The  labor  is  distributed  from 
the  time  cards  returned  by  each  department,  as  shown  on  the 
pay  roll.  Overhead  is  carried  to  each  department  in  propor- 
tion to  its  dollars  of  labor.*  The  foremen  are  charged  up  to 
their  respective  departments,  such  as  melting,  molding,  core- 
making,  etc.  Foundry  clerks  in  charge  of  time  cards,  order 
cards  and  foundry  records  are  charged  to  molding.  The 
superintendent's  time  may  be  divided  over  melting,  molding, 

*  This  indicates  a  survival  of  ancient  and  inaccurate  methods. 
If  wages  in  one  department  should  be  raised  the  proportion  of 
overhead  to  cost  of  direct  labor  in  that  department  should  be 
decreased.  Labor  on  machine  molding  should  be  charged  with  a 
heavier  burden  than  labor  on  bench  molding. 


FOUNDRY   COSTS 


173 


FOUNDRY  COSTS 

Iron  Casting   Cost  Sheet   (Monthly  Exhibit  Sheet — Albert  Walton) 


Per  Ton  Good  C 

t  STING 

Account  Item 

Net  Tons 

Price 
per  Ton 

Amount 

Material 

Pounds 

Per  Cent 

Cost 

Pig  Iron  Charged: 

D 

143.430 

13.62 

1953.52 

C 

4.200 

13.62 

57.20 

A 

136  050 

13.62 

1853.00 

L 

Total 

1.325 

16  02 

21.23 

285.005 

13.63 

3884  95 

1554 

77.7 

10.59 

Scrap,  etc.,  Charged: 

Shop  Scrap 

53.840 

12.00 

646  08 

Foundry  Scrap 

222.205 

12.00 

2666.46 

Chills 

.630 

12.00 

7  56 

Bought  Scrap 
Total 

.500 

12.00 

6.00 

277    175 

12.00 

3326    10 

1512 

75.6 

9.07 

Gross  Metal  Charged 

562.180 

12.82 

7211.05 

3066 

153.3 

19.66 

Less  Scrap  Produced: 

Defective  Castings 

28.372 

12.00 

340.46 

7.7 

Foundry  Scrap 
Total 

144.720 

12.00 

1733.64 

39.5 

1  73 . 092 

12.00 

2077. 10 

944 

47.2 

5.13 

Net  Metal  Charged 

389.088 

13.79 

5133.95 

2122 

106.1 

14.00 

Fuel: 

For  Melting,  Coal 

.750 

2.95 

2.21 

For  Melting,  Coke 

68  395 

4.80 

328.65 

376 

18  8 

For  Core  Ovens,  Coke 
Total  Fuel 

9  680 

3.70 

35.82 

52 

2.6 

78.825 

366  68 

428 

21.4 

1.00 

Fluxes: 

Limestone 

11.515 

1.00 

II    52 

62 

1    1 

03 

General  Foundry  Expense 

Amount 

Cost 

per 

ton,  Good 

Castings 

General  Factory  Expense,  Dept.  No.     1 

775 

25 

2 

II 

Machine  Shop,                       Dept.  No.     2 

21 

73 

06 

Pattern  Shop,                         Dept.  10 

193 

27 

53 

Forging  Shop,                           Dept.  1  5 

16 

33 

04 

Tool  Room                              Dept.  16 

4 

14 

01 

Carpenter  Shop                       Dept.  19 

16 

03 

04 

Stable  and  Hauling              Dept.  32 

61 

15 

17 

Power                                    Dept.  25 

431 

69 

1 

18 

Depreciation 

352 

70 

96 

Taxes  and  Insurance 

47 

52 

13 

45.  Loss  on  Defective  Castings 

302 

84 
65 

83 

Total  General  Foundry  Expense 

2222 

6 

06 

42.   Repairs,  Maintenance  and  Supplies: 

Labor  in  Repairs  and  Maintenance 

165 

54 

0 

45 

Material  in  Repairs  and  Maintenance 

69 

25 

19 

43.  Tools  and  Miscellaneous  Supplies 

551 

13 

'12 

1 

51 

Total  R.  M.  &  S. 

785 

2 

15 

41.  Producing  Labor: 

A  Foreman  and  Assistants 

357 

05 

0 

97 

B   Clerks  and  Weighers 

234 

26 

67 

C  Hauling  Metal 

5 

10 

01 

D  Molding  and  Casting 

4591 

20 

12 

52 

F  Cleaning  and  Shipping 

421 

53 

1 

15 

G  Sand  Blast  Labor 

38 

96 

11 

H  Pickling  Labor 

97 

99 

26 

K  Cupola  Labor 

291 

83 

80 

L  Inspection 

419 

40 

1 

14 

M  Shaking  Out  Labor 

301 

50 

82 

N  Core  Making 

1399 

03 

3 

81 

P   General,  not  included  above 

395 

47 
32 

1 

07 

Total  Producing  Labor 

8553 

23 

33 

Total  Metal,  Fuel  and  Flux 

5,512 

15 

15 

04 

Total  Labor  and  Expenses 

11.561 

89 
04 

31 
46 

54 

Net  Cost  366.6  Tons  Good  Castings 

17,074 

58 

Total  Number  of  Heata 
Coke  used  in  Cupola  per  Heat 
Good  Castings  per  Heat 
Iron  Melted  per  lb.  Coke 


25 
2 . 7  Tons 
14 . 663 

5 . 7  Pounds 


Metal  Practice 

Tons 

Per  Cent 

Good  Castings 
Defective  Castings 
Scrap 
Loss 

366  584 
28  372 

144.74 
22  489 

562    185 

65.21 

5.05 

25.74 

4    111) 

Gross  Metal  Charged 

100 

Monthly  Foundry  Reports 

The  metal  reports  of  a  large   concern  in   New  England 
have  the  following  items.* 


Iron  Foundry 

Brass  Foundry 

Press  Shop  Metal 

.lllll. 

Jan. 

Jan. 

Pig,  lb. 

Copper  Melted 

Metal  from  Rack 

Scrap,  lb. 

Other  New  Metal 

Product 

Back  Stock.t  lb. 

Scrap  Turnings 





and  Skimmings 

Resulting  Scrap 

Gross  Melt,  lb. 

Back  Stock 

%  Scrap 

Less  Back  Stock 

Gross  Melt 

Net  Melt 

Less  Back  Stock 

Product 

Net  Melt 

Loss  in  Melting 

Product 

%  of  Gross  Melt 

Loss  in  Melting 

%  of  Gross  Melt 

*  Columns  for  12  months  and  yearly  total 

t  The  "  back  stock  "  consists  of  gates,  sprues,  etc. 


174 


BOOKKEEPING  AND   COST  ACCOUNTING 


coremaking,  and  cleaning,  when  inspection,  pattern  making, 
machining,  shipping  and  general  are  handled  directly  by  a 
works  manager.  Arbitrary  divisions  of  some  items  of  the 
pay  roll  will  be  necessary,  as  they  will  vary  with  the  size  of 
the  foundry  and  its  general  organization  plan. 

Assuming  an  arbitrary  set  of  figures  for  illustration,  the 
following  summary  may  be  made.  The  figures  are  cents  per 
pound : 


Department 

Labor 

Supplies 

Overhead 

Total 

Melting 

0  53 

0   10 

0.47 

1    10 

Molding 

1   03 

0   12 

0.94 

2  09 

Coremaking 

0.29 

0   12 

0  27 

0.68 

Cleaning 

0  35 

0   10 

0.32 

0  77 

Inspection 

0.08 

0  00 

0  07 

0   15 

Shipping 

0.06 

0.04 

0.06 

0   16 

Machining 

0.02 

0  00 

0  01 

0  03 

Pattern  Making 

0.03 

0.02 

0  02 

0  07 

General 

0  30 

0   10 

0.39 

0  79 

Total 

2  69 

0.60 

2  55 

5  84 

From  such  a  summary  ratios,  or  percentages  of  total  ex- 
penses to  molding  labor,  are  obtained.  For  example,  we  have 
the  ratio  of  total  Manufacturing  Expense  to  Molding  Labor, 
5.84  to  1.03,  or  5.67.  A  foundry  having  such  a  ratio  could 
use  6  for  this  item  in  making  up  an  estimate  on  castings 
which  may  be  considered  suitable  to  its  plant  and  equipment 
and  its  class  of  labor  and  general  organization.  This  ratio, 
however,  assumes  that  all  pieces  are  cored.  Estimates  on 
plain  work  under  this  plan  would  drop  the  item  of  coremaking 
from  the  summary  giving  a  new  ratio,  and  a  lower  estimated 
cost.  Estimates  on  difficult  cored  work  might  double  the 
coremaking  item,  but  would  retain  the  standard  ratio  of 
Manufacturing  Expense  to  Molding  Labor.  From  such  a 
table  several  valuable  ratios  may  be  obtained. 

The  supplies  for  the  melting,  molding,  coremaking  and 
cleaning  departments  are  further  subdivided  from  month  to 
month,  the  costs  being  carried  on  the  page  with  the  summary. 

Buildings  and  Equipment.  Any  labor  which  the  foundry 
applies  to  the  upkeep  of  its  buildings  and  equipment  is  charged 
to  these  accounts.  Such  labor  carries  with  it  certain  materials 
(referred  to  as  supplies  above),  as  shown  by  requisitions. 
This  labor  should  carry  also  its  share  of  the  Overhead,  pro- 
portional to  the  dollars  of  labor  applied.  In  turn  the  de- 
preciation applied  to  Buildings  and  Equipment  is  carried  into 
Overhead  each  month,  to  be  charged  to  the  various  items  of 
Manufacturing  Expense,  as  shown  in  the  summary.  Ex- 
penditures for  buildings  erected  by  contract,  or  for  equipment 
by  purchase,  are  charged  to  these  accounts  in  the  same  way, 
and  charged  out  regularly  to  Overhead. 

Estimating.  The  factors  that  enter  into  any  estimate  are 
shown  in  the  following  example: 


Metals 

30  OOjf 

per  lb. 

Melting  Loss 

2.40 

32.40 

Molding  Labor 

1.10 

Manufacturing  Ratio 

6 

Manufacturing  Expense 

6  60 

6.60 

Selling  Expense 

1.20 

1   20 

Sale  Cost 

40.20 

Sale  Price  (basis  10%  profit) 

44.00 

The  metals  are  figured  on  the  basis  of  market  quotations  at 
the  time.  The  melting  loss  assumes  a  4  per  cent  loss  in  the 
furnace,  with  a  50  per  cent  yield  of  good  castings.  The 
molding  labor  has  been  estimated  from  a  yield  of  500  pounds 
for  $5.50,  direct  molding  cost.  The  ratio  of  6  has  been  found 
to  be  correct  for  the  foundry  in  question,  within  reasonable 
limits.* 

The  Selling  Expense  is  the  average  selling  expense,  per 
pound,  for  the  past  six  months.  It  includes  salaries  of  sales- 
men, traveling  expenses,  advertising,  outbound  freight, 
cartage,  entertaining,  bad  debt  reserve,  commission  reserve, 
discounts,  etc. 


Illustration  of  a  Cost  Statement 

This  account  is  the  total  of  all  the  different  alloys  made, 
might  cover  the  following  items : 


It 


For  the 

Alloy 
No. 

Amount 
Charged 

Good 
Castings 

Bad 
Castings 

Gates 
and  Risers 

Melting 
Loss 

1 

2 
3 

4 
5 

33,900 
49,400 
13.400 
15,500 
6.000 

19,000 
30,000 
8,200 
9,000 
3,800 

2000 
3000 

800 
1000 

400 

12,000 

15.000 

4,000 

5,000 

1,600 

900 
1400 
400 

500 
200 

Total 

118,200 

70,000 

7200 

37,600 

3400 

From  this  we  have,  averaging  all  metals: 


1 18,200  lbs.  metal  charged  @ 

Credit  7,200  lbs.  bad  castings  @ 

Credit  37,600  lbs.  Gates  and  Risers  @ 

73.400  lbs.  metal  consumed  @ 

70,000  lbs.  good  castings  @ 

Productive  Labor  item  2 
Productive  Labor  item  3 

70.000  Good  Castings,  made  @  1 .  2Si 

Tonnage  Group,  items  4  to  6 
Tonnage  Group,  items  7  to  10 
General  Expense  Group,  items  11  to  15 
General  Expense  Group,  items  16  to  20 
General  Expense  Group,  items  21  to  23 

70,000  lbs.  Good  Castings,  made  @  I  .64f" 
Total  70,000  lbs.  Good  Castings,  ©  2.93 j* 


28.0c"    $33,096  00 


28.  Of? 
28.  0<* 
28. 0i 


2,016  00 
10,528.00 
20.552  00 


29.  36C  per  pound 

700  00 
200  00 


$    900  00 

$    300  00 

200  00 

300  00 

200  00 

150  00 

$1,150  00 
2,050  00 


The  average  manufacturing  cost  of  70,000  pounds  of  castings 
is  then 


Metals 

Manufacturing  Expense 

Total  (average  per  lb.,  32.29f?) 


$20,552  00 
2,050  00 


$22,602  00 


♦This  method  of  applying  the  overhead,  averaging  it  over  the 
whole  product  and  using  a  uniform  ratio  for  all  departments  will 
give  erroneous  and  misleading  figures  of  the  cost  of  castings  if  they 
vary  in  kind  and  size.  The  overhead  on  melting  should  cover 
cost  of  fuel,  repairs  of  furnaces,  breakage  of  crucibles,  etc.,  and 
will  usually  be  a  high  percentage  of  the  direct  labor  cost  of  melk- 
ing,  while  the  burden  on  bench  molding  is  a  low  percentage. 

Averages  and  percentages  based  on  averages  should  always  be 
looked  on  with  suspicion  by  cost  accountants. 


FOUNDRY  COSTS 


17.') 


Summary.  In  summarizing  it  is  assumed  that  depreci- 
ation has  been  charged  to  Expense,  and  that  the  Selling 
Expense  for  the  month  amounts  to  §1,000.00. 

Castings  on  hand  at  first  of  month  5,000  lbs.  $   1.500  00 

Good  castings  made  during  the  month  70,000  lbs.     22,602 .  00 


Total  @  32.00f!  per  pound  75,000  lbs.  $24,102  00 

Good  castings  not  shipped  at  end  of  month  10,000 
lbs.  3,200  00 


Castings  shipped  65,000  lbs. 

To  show  the  profit  we  have : 

Castings  invoiced  65,000  lbs. 
Manufacturing  cost  of  castings  65,000  lbs. 

Gross  Profit 
Selling  expense 

Net  profit  for  the  period 


$20,902.00 


$23,990  00 
20,902.00 


$  3.088  00 
1,000  00 


$  2,088.00 


Forms  and  Routine  of  the  Direct  and  Indirect  Items  Plan. 

The  Time  Card  of  the  usual  time-clock  type  shows  the 
hours  worked,  and  the  department  or  cost  item  (as  molding) 
to  which  the  wages  are  chargeable.  The  Time  Clerk  checks 
the  employees'  time  during  each  day  to  prevent  errors.  All 
the  wages  on  the  Time  Card  are  distributed  and  checked  on 
the  Labor  Distribution  Sheet. 

The  Day  Work  Card  is  sent  with  the  pattern  to  the  molder. 
The  Pattern  Clerk  enters  the  pattern,  alloy  and  shop  order 
numbers,  date  ordered,  date  wanted  and  castings  wanted, 
and  checks  the  cored  or  solid  items.  The  Foundry  Clerk 
enters  the  other  items  as  the  molder  starts  and  stops,  or 
completes  the  order.  In  noting  the  kind  of  patterns,  full 
data  should  be  entered,  as  for  a  plated  pattern:  "  10  on  iron 
plate  for  12  in.X18  in.  Berkshire;  2  cores."  This  card  is 
used  for  all  patterns  not  working  on  a  piece  price  basis. 


H 
Z 

z 
£ 

Palt.  Number 

Date  Ordered 

B    0 

V 

I 

S 

.PI 

Alloy  Number 

Date  Wanted 

Shop  <  KiU  i  Number 

Castings  Wanted 

22 

."  c 
a.  — 

C 

S3 

—  c 

=  . 

J- 

E  i 

Description  of  Pattern 

r. 

0 

n 

D. 

Hand 

v 

/ 

<  3 

3 

11 

1-. 

II 

Gated 

A 

\  /\  / 

J 
O 

a 

3 

I 

Jz 

2 

* 

Q 

o  a 

ss 

Loose 

(Form  t .  Time  Ticket  fur  Piece  Work  Size  6%  > 

3  in,) 

1         1         1 
(Back  of  Form!) 

Customer 

23 

C/l 

0 

■a 

8 

1* 

Molding  Foreman's 
Comment  on  Equipment 

— 

Form  BF1    Piece  Work  Card 

The  Piece  Work  Card  is  used  for  piece  work,  it  being 
advisable  to  use  a  different  color  from  that  of  Day  Work 
Card. 


CUSTOMER 

Pattern  Number 

Address 

Kind  of  Pattern  and  reason  for  changing 

Date 

O.K. 

Rate 

(Size  G  x  3  in.iruled  lines  ) 

' 

\ . ■ 

Form  No. 

Form  BF2 


Piece  Rate  Card  for  Pattern  Changes 


The  Piece  Rate  Card  is  the  office  record  of  the  piece  rate 
set  by  the  Superintendent  for  any  particular  pattern. 


DAILY  MOLDING   REPORT 

Date 

Customer 

Pattern 
Number 

Shop  Order 
Number 

Molder's 
Number 

Number  Castings  Made 

Cored 

or 
Solid 

Piece 
Work 

Time 

Alloy 

Foreman's  Comment 

Plated 

Gated 

Loose 

{Size  %  x  10  in 

,  2*  ruled  lines) 



Form  BF3 


When  an  employee  is  transferred  from  one  department  to 
another,  as  from  Melting  (4)  to  General  Labor  (5),  during 


the  day,  notice  of  the  transfer  is  sent  to  the  Pay  Roll  Clerk 
by  the  employee's  foreman. 


DAILY  CASTING  REPORT 

Date 

Customer 

Pattern 
Number 

Shop  Order 
Number 

Molder's 

Number 

Total  Castings 

Good  Castings 

Bad  Castings 

Cored 

or 
Solid 

Piece 
Work 

Time 

Alloy 

Pieces 

Pounds 

Pieces 

Pounds 

Pieces 

Pounds 

(Size  8%  x  to  in 

,  2£  ruled  lines) 

. 

Form  BF4 


The  Daily  Molding  Report  is  made  out  each  day  by  the 
Foundry  Clerk,  one  copy  going  to  the  Superintendent,  one 
to  the  Inspector,  and  one  to  the  Cost  Clerk.  Time  is  entered 
in  hours  and  tenths  of  an  hour  as  1.5.     Piece-work  must  be 


indicated  by  a  check  (V),  so  that  the  Inspection  Department 
may  go  over  the  piece-work  castings  first  in  order  that  the 
pay  roll  record  may  not  be  delayed. 

The  Daily  Casting  Report  is  made  out  each  day  by  the 


176 


BOOKKEEPING  AND  COST  ACCOUNTING 


CORE  CARD 

Customer 

Pattern  Number 

Date  Ordered 

Alloy  Number 

Date  Wanted 

Shop  Order  Number 

(Size  3  X3tn.) 

Number  of  Cocet  Wanted 

Form  BF5 


CORE  ROOM 

Piece  Work  Report 

Customer 

Pattern     Employe's,  Pieces 
Number     Number      Made 

Piece 
Rate 

Amount 

Hours 
P.W. 

Hours 
D.W. 

(Size  8%  x5y4  ii 

.;/?  lines) 

1 

! _ 

Form  BF6 


Inspector.  One  copy  goes  to  the  Foundry  Clerk,  who  from 
it  makes  out  a  Work  Card  (Day  or  Piece),  for  the  required 
shortages;   one  goes  to  the  Cost  Clerk;  and  one  to  the  Pay 


Roll  Clerk,  who  checks  the  piece-work  time  against  the  Time 
Cards  and  Day  Work  Cards,  to  find  the  wages  due  each 
molder. 


MANUFACTURING  EXPENSE  CARD 

Customer 

Alloy  Number                                1  Plated                                  1  Changes  in  Pattern 
Gated 
|  Loose 

Pattern  Number 

Date 
Run 

Shop 
Order 

Number 

Good 
Pieced 

Made 

Weight 
Good 
Pieces 

Average 
Weight 

Molders 
Time 

Molders 
Rate 

Amount 

Molding 

Cost 

Per 

Pound 

Core 
Makers 
Time 

Core 

Makers 
Rate 

Amount 

Total 
Amount 

Productive 
Labor  Cost 
Per  Pound 

(Size  8%  x  t 

in.,  /-i  ruled 

lines) 

Form  BF7 


SUMMARIES 

Date 

From 

To 

Good 
Pieces 

Made 

Weight 
Good 
Pieces 

Amount 

Molding 
Time 

Molding 

Cost 

Per 

Pound 

Amount 

Core  Making 

Time 

Cora  Making 
Coat 
Per 
Pound 

Metal 

Per 

Pound 

Overhead 

by 

Tonnage 

Overhead 

by 
Molding 

Overhead 
by  Core 
Making 

Mfg.  Cost 

Per 

Pound 

Manager's 
Comment 

(SizeS^. 

!  -H  in.,  5  r 

tied  lines) 

Form  BFS 


The  Core  Card  is  made  out  by  the  Pattern  Clerk,  and  goes 
with  the  core  box  to  the  Core  Room  Foreman.  The  Piece- 
rate  Card  is  used  to  register  the  piece  rates  on  cores,  being 
rubber  stamped  Cores  Only.  The  number  of  good  cores  made 
is  reported  to  the  Pay  Roll  Clerk  by  the  Core  Room  Foreman, 
on  the  card  Core  Room:  Piece-work  Report. 

Manufacturing  Expense  Card.  It  is  considered  best  to  col- 
lect the  costs  by  customer,  since  his  business  must  be  treated 
as  a  whole,  regardless  of  the  fact  that  some  particular  pattern 
may  run  at  a  loss.  To  do  this,  the  details  are  collected  by 
pattern  number.  The  Manufacturing  Expense  Card  is  sum- 
marized from  time  to  time,  to  note  the  effect  of  tonnage,  and 
particularly  to  note  the  effect  of  a  revision  in  pattern  as 
indicated  by  a  comment  in  the  space  Change  in  Pattern. 
When  a  change  is  made,  a  new  card  should  be  started.  In 
order  that  this  card  may  check  with  the  books  the  actual 
cost  of  metals  consumed  for  this  alloy  for  the  month  must  be 
used.  This  is  true  also  of  the  overhead  ratios  or  per  cents. 
The  sum  of  all  the  costs  shown  on  these  cards,  for  any 
month  must  check,  within  close  limits,  to  the  books.  The 
metal  loss  will  be  the  average  metal  loss  for  the  alloy  in 
question. 

The  Requisition  Slip  is  used  by  the  foremen,  for  supplies, 


as  sand,  coke,  shovels  and  tools.     A  summary  of  the  Requi- 
sition Slips  shows  the  supplies  used  for  any  period. 


REQUISITION  FOR  SUPPLIES 

To  Storea  Clerk  Date_ 

Kindly  Supply  the  following:  Department 


(Size  S  x  3  hi.;G  lines) 


Form  BF9 


Date 

PLANT  SUB-ORDER 

N", 

Description  of  work  to  be  done, 

in 

detail 

(Size 

«l'it 

in.) 

Copies  to 

Authorized  by 

Signed  by 

Form  BF10 

The  Plant  Sub-Order  shows  the  labor  expended  on  Build- 
ings and  Equipment,  covering  reconstruction  and  changes,  as 
well  as  repairs  and  renewals. 


FOUNDRY  COSTS 


177 


Form  BF11 


Distribution  of  Items  of  Expense.  On  this  sheet  the 
daily  or  weekly  expenses  are  summarized  to  complete  any 
selected  period,  as  one  month.  Accounts  2  and  3  are  pro- 
ductive labor  accounts.  Accounts  4  to  10  are  known  as  the 
Tonnage  Group.  Accounts  11  to  20  take  the  proportion  of 
account  24  and  the  depreciation  of  account  25  that  account 
2  shows  of  the  total  of  accounts  2  and  3.  Accounts  21  to 
23,  in  the  same  manner  take  account  3's  proportion  of  pro- 
ductive labor.  Accounts  24  and  25  do  not  form  part  of  the 
total  cost  except  as  distributed  in  this  way.  The  proportion 
of  accounts  2  and  3  is  first  determined.  Account  24  is  then 
distributed  to  its  proper  places.  Depreciation  of  account  25 
is  distributed  in  the  same  way.  This  distribution  would  then 
summarize  as  follows: 


Accounts  21  to  23 

Account  24 

Account  25,  400.00  @  10% 

Total  Account  24  and  25 

%  Molding  Labor  75.0 

%  Coremaking  Labor  25.0 

Share  of  Accounts  24  and  25 

To  Accounts  1 1  to  20 

Share  of  Arcounts  24  and  25  to 

Accounts  21  to  23 

Revising  this  we  have: 

Molding  Labor 
Coremaking  Labor 
Tonnage  Group  (4  to  10) 
General  Expense:  Molding  (11-20) 
General  Expense: 
Coremaking  (21-23) 


Month  of                                                                                                                      DISTRIBUTION   OF  ITEMS  OF  EXPENSE 

Pounds  Good  Castings 

Day 

Molding 
Labor 
Acct. 

2 

Core  M'k'g 
Labor 
Acct. 

'  3 

Total 
of                      Melting 

Accts.                  Acct- 

2&3                        * 

General 
Labor 
Acct. 

5 

Repair 

Labor 

Acct. 

6 

Crucibles 

Acct. 

7 

Fuel 

Acct. 

8 

Charcoal 

Acct. 

9 

Refraction 
Acct. 

Id 

Total 

of 
Accts. 
4  to  10 

| 

Columns  J 

or  other 

(Size  of  form  (9  x  *H  in.) 

tit: 

ft.  Foremen 

12.  Clerks  1 

(Headings  Continued)                                                          %  Acc|  No  2 

%  Acct.  No.  3 

<3.  Cleaning 

U.  Inspection 

Molding's 

Share  of 

General  Exp. 

Acct. 

20 

Total 
Acct. 

II  to  20 

Core  Room 

Foremen 

Acct. 

21 

Core  Room 

Supplies 

Acct. 

22 

Core  Making 

Share 

General 

Expense 

23 

Total 

of 
Accts. 
21  to  23 

Overhead 

Acct. 

24 

Buildings 

and 
Equipment 

25 

Total 

'•*.  Repainnen 

Its.          .. 

17.  Holding  Sand 

ts.  other  Supplies 

19.      " 

■■ 

(2/  ruled  lines) 

Totals 

Accts.  24 

Per  Lb. 

Ratio  of  Accts.  1 1  to  20  to  Acct.  No.  2 

Ratio  of  Accts.  21  to  23  to  Acct.  No.  3 



500.00 

600  00 

40  00 

640  00 


480.00 
160.00 


$1,500  00 

500  00 

1,000.00 

1,680  00 


1 .  50(*  per  lb. 

0  50f(  per  lb. 

1  OOff  per  lb. 
I  .68fi  per  lb. 


660  00     0.66iperlb. 


Good  Castings  made 

Molding  Labor  Account,  No.  2 

Coremaking  Labor  Account,  No.  3 

Accounts  4  to  10 

Accounts  1 1  to  20 


100,000  lbs. 

$1,500.00 

500.00 

1 ,000  00 

1,200  00 


Total 


$5,340.00      5.34$!  per  lb. 


Ratio  General  Expense: 

Molding,  to  Molding  Labor 
Coremaking,  to  Coremaking  Labor 


.12 
.32 


WORKS   MANAGERS   DAILY   REPORT 

Date 

Alloy 

Gross 
Product 

Weight  of 
Good 

Castings 

Weight  of 
Bad  Castings 

Total  No.  of 
Pieces  Made 

No.  of 
Good  Pieces 

No.  of 
Bad  Pieces 

% 
Loss  by 
Weight 

% 
Loss  by 
Pieces 

Average  No. 
of  Men 
Per  Day 

Average  Wt. 
Per  Man 
Per  Dav 

Average  Wt. 

Per 

Caatine 

(Size  8%  x  tVi 

in.,  /9  ruled  li 

ties) 

Total 

1 

..  i 

Form  BF12 


The  Works  Manager's  Daily  Report  is  made  out  daily, 
by  the  Cost  Clerk,  from  the  Daily  Casting  Report. 

The  Metal  Requisition  is  sent  to  the  Store  Room  Clerk 
by  the  Metal  Room  Clerk.  Through  these  requisitions  the 
Store  Room  Clerk  makes  the  necessary  deductions  on  his 
stock  cards,  which  gives  him  a  perpetual  inventory  on  each 
class  or  group  of  metals.  This  Metal  Requisition  is  also  used 
by  the  Cleaning  Room  Foreman  who  delivers  scrap  back  to 


METAL  REQUISITION 

Date 

Pounds 

Description 

(Size  8  x  2)4  in  ; 

5  ruled  lines) 

Received  by 

Checked  by 

Form  BF13 


178 


BOOKKEEPING  AND  COST  ACCOUNTING 


the  metal  room,  and  gets  a  receipt  for  the  amount.  This 
enables  the  Metal  Room  Clerk  to  carry  an  inventory  of  each 
alloy,  on  the  metal  room  stock  card. 


Furnace  No._ 
Alloy  No. 


HEAT  TICKET 

Heat  No.  - 


Pounds  Wanted  . 
Remarks 


(Size  %  x  3  in.;i  rated  lines) 


Form  BF14 

The  Heat  Ticket  is  issued  by  the  Melting  Foreman  on  the 
Metal  Room  Clerk,  for  each  heat  wanted.  Each  heat  ticket 
is  passed  through  a  time  clock  conveniently  located,  as  the 
heat  is  sent  to  the  melting  department. 


METAL  REPORT 

Heat 

Number 

Furnace 

Number 

Alloy 

Number 

Total     Class  All    .      «.   .Class  A  2 

COPPER 

Charge 

Metals 

Metals 

Metals 

Lot  No.  |  Pounds 

(Size 

of  Form 

2'  x  8  in.; 

(Ten  additional 

2i  ruled 

lines) 

for  Tin,  Lead,  Zinc, 

Phc 

s  Copper, Phos.T  in 
and-AS-Meta-Lbs-)~ 

Form  BF15 

The  Metal  Report  is  made  out  each  day,  by  heats,  and  is 
summarized  for  the  week  or  month.  It  shows  every  pound 
of  material  that  goes  into  the  furnace.  The  net  metal  con- 
sumed during  the  period  is  arrived  at  as  illustrated  in  the 
following  example: 


In  Metal  Room  December  1st 
From  Store  Room 
From  Cleaning  Room 

Total 

Issued  on  Heat  Tickets 

In  Metal  Room  December  31st 

Lost  in  Melting 

Total 


40,000  lbs. 
15,000  lbs. 
10,000  lbs. 

65,000  lbs. 

40,000  lbs. 

23,000  lbs. 

2,000  lbs. 

65,000  lbs. 


Each  alloy  must  be  handled  in  this  way. 

General.  To  make  a  success  of  any  Cost  System  the 
mechanical  details  of  handling  and  recording  operations  must 
be  closely  followed.  Stock  cards  must  be  carefully  kept; 
bins  must  be  provided  in  the  store  room  and  metal  room. 
Defective  castings  and  gates  and  risers  and  other  scrap  must 
be  returned  to  the  metal  room,  and  the  proper  records  kept 
of  the  return.  Cleanliness  and  orderliness  must  be  main- 
tained.    Records  must  not  be  allowed  to  fall  behind. 

The  accompanying  cost  forms  (here  reduced  in  size  to 
save  space)  may  be  obtained,  with  prices,  from  the  Service 
Bureau,  National  Founders'  Association,  29  South  La  Salle 
St.,  Chicago. 

Caution  in  Regard  to  the  Use  of  Forms.  The  Cost  of 
Goods  does  not  Include  the  Cost  of  Selling  them.  (Extracts 
from  "Efficient  Cost  Keeping,"  by  E.  St.  Elmo  Lewis.) 

Great  care  should  be  taken  in  the  introduction  of  a  cost  system 
in  a  factory.  A  firm  manufacturing  a  specialty  and  employing 
about  1200  men  in  the  factory,  introduced  a  system  that  ulti- 
mately required  nearly  250  printed  forms.     When  these  forms 


were  rearranged  and  a  proper  system  was  installed,  all  but  23  of 
them  were  discarded.     The  saving,  of  course,  was  tremendous. 

Before  installing  a  cost  system,  it  is  important  to  decide  what 
you  want  it  to  tell  you.  Analyze  your  conditions  closely,  then 
see  that  the  cost  system  fits  these  conditions. 

Over-systematizing  generally  comes  as  a  result  of  "letting  the 
system  work  out  itself,"  instead  of  having  some  specialist  come 
in  and  work  out  a  complete  plan  of  cost  keeping,  coherent,  logical, 
thorough,  with  definite  objects  in  view. 

Mere  forms  do  not  make  a  system;  nor  does  an  adding  machine, 
a  typewriter,  or  a  few  clerks  make  a  system.  They  are  simply 
the  physical  expression  of  a  system. 

No  form  should  be  put  in  operation  until  it  has  been  carefully 

considered,  both  in  its  relation  to  the  specific  thing  that  the  form 

is  to  record,  and  in  its  relation  to  every  other  form  in  the  system. 

Put  on  the  form  just  as  many  data  as  you  consider  necessary. 

Don't  use  any  one  form  for  entirely  different  classes  of  data. 

The  cost  of  goods  when  placed  in  the  shipping  room  does  not 
include  the  expense  necessary  to  market  the  product. 

Selling  expense  varies  even  more  than  manufacturing  cost. 
Selling  expense  is  often  several  times  the  complete  manufacturing 
cost. 

Manufacturing  costs  and  selling  costs  are  two  separate  and 

distinct  propositions  and  must  not  be  confused  with  one  another. 

The   cost   system   should   fit   the   business.     A   system   well 

adapted  to  meet  the  needs  of  a  machine-tool  concern  would  not 

fit  a  dairy  and  vice  versa. 

"Improving  the  system  of  management  means  the  elimination 
of  elements  of  chance  or  accident,  and  the  accomplishment  of  all 
the  ends  desired  in  accordance  with  knowledge  derived  from  a 
scientific  investigation  of  everything  down  to  the  smallest  detail  of 
Ixbor,  for  all  misdirected  effort  is  simply  loss,  and  must  be  borne 
cither  by  the  employer  or  employee."* — H.  L.  Gantt. 

COST  AND   PRICE   OF  COAL  f 

Four  general  items  of  cost  normally  control  the  price  of  coal 
to  the  Consumer:  1.  Resource  cost  (the  amount  charged  as  the 
value  of  the  coal  in  the  ground);  2.  Mining  cost;  3.  Transpor- 
tation cost;  4.  Marketing  costs.  Under  usual  conditions  each 
of  these  items  includes  a  margin  of  profit. 

The  cost  of  mining  is  divided  between  labor,  70  to  75  per  cent; 
material  16  to  20  per  cent;  taxes,  less  than  1  per  cent  to  3  per 
cent  for  bituminous  coal,  and  3  to  7  per  cent  for  anthracite; 
selling  expenses,  nothing  to  5  per  cent;  workmen's  compensa- 
tion for  injuries  may  reach  5  per  cent  for  bituminous  coal.  The 
census  of  1909  indicated  an  average  mining  cost  of  SI  a  ton  for 
bituminous  coal  and  $1.86  for  anthracite. 

The  taxes  in  West  Virginia  last  year  (1915)  levied  on  coal  lands 
and  coal  mine  improvements  were  equivalent  to  nearly  3  cents 
per  net  ton  of  coal  produced. 

The  average  selling  cost  for  bituminous  coal  is  probably  5  to 
10  cents  per  ton,  and  for  anthracite  coal  the  usual  charge  of  sales 
agencies  is  10  cents  a  ton  for  steam  sizes  and  15  cents  for  the 
prepared  sizes. 

In  interstate  traffic,  both  rail  and  water,  bituminous  coal 
probably  pays  an  average  freight  of  §2  per  ton;  the  average  for 
anthracite  is  higher. 

The  cost  of  handling  the  coal,  exclusive  of  freight,  from  the 
time  it  leaves  the  producer  until  it  is  in  the  consumer's  bin,  may 
be  termed  the  marketing  cost.  Coal  that  gets  a  long  way  from 
the  mine  may  pass  through  many  hands  before  it  reaches  the 
consumer,  and  it  not  only  pays  commission  all  along  the  line,  but 
is  subject  to  shrinkage  and  deterioration.  The  margin  in  the 
retail  business  between  cost  on  cars  and  price  delivered  is  from 
$1.25  to  $2  per  ton,  and  is  not  more  than  nnough  to  give  on  the 
average  a  fair  profit. 

*Or  passed  along,  by  means  of  increased  selling  prices,  to  the 
final  consumer. — W.  K. 

fThe  reference  to  the  authority  for  these  statements  has  been 
mislaid. 


COST  AND  PRICE  OF  COAL 


179 


The  resource  cost,  what  the  operator  lias  to  pay  for  the  coal 
in  the  ground,  is  expressed  as  a  royalty  or  depletion  charge.  One 
of  the  latest  leases  by  a  large  coal  land  owner  (the  Girard  Trust 
of  Philadelphia),  provides  for  the  payment  of  27  per  cent  of  the 
selling  price  of  the  coal  at  the  breaker.  This  is  equivalent  to  $1 
a  ton  tribute  paid  to  private  ownership.  The  present  average 
rate  of  royalty  on  anthracite  is  probably  between  32  and  35  cents 
a  ton  on  all  sizes,  which  is  from  12  to  14  per  cent  of  the  selling 
value  at  the  mine.  The  tendency  is  still  upward.  At  the  begin- 
nign  of  the  last  century  the  great  bulk  of  the  anthracite  lands 
were  patented  by  the  State  of  Pennsylvania  for  $2  to  $4  an  acre; 
in  the  middle  of  the  century  the  price  of  the  best  land  rose  to 
$50  and  in  1875  to  $500.  Now,  S3000  an  acre  has  been  paid 
for  virgin  coal  land,  and  little  is  on  the  market.  The  present 
average  resource  cost  of  bituminous  coal  is  not  much  over  5  cents 
a  ton  or  about  4  per  cent  of  the  average  selling  value  at  the  mine. 
In  the  Pocahontas  and  Pittsburg  districts  the  royalties  are 
much  higher. 

The  prospects  of  relief  from  high  prices  of  coal  are  not  prom- 
ising. The  prices  of  labor  and  material  for  mining  tend  to 
advance.  The  mining  methods  are  far  less  wasteful  than  for- 
merly, the  average  recovery  in  anthracite  mining  being  65  per 
cent  as  against  40  per  cent  only  20  years  ago.  Not  much  further 
improvement  can  be  made  in  this  direction.  The  increased 
safety  of  mines  and  the  workmen's  compensation  laws  add  some- 
thing to  the  cost  of  coal.  Reduction  in  the  cost  of  marketing  is 
possible;  it  is  stated  that  the  delivery  of  coal  is  costing  the 
retail  dealers  50  cents  a  ton  more  than  is  necessary. 

Exact  mining  costs  cannot  be  determined  until  the  operators 
have  accomplished  their  reform  of  standardized  accounting. 
Too  often  the  operator  includes  in  his  account  only  the  two 
largest  items,  labor  and  material.  When  the  market  for  bitu- 
minous coal  is  dull,  the  company  whose  land  costs  little  or  noth- 
ing is  able  to  set  a  lower  limit  of  price  than  the  company  whose 
coal  must  stand  a  charge  of  5  or  10  cents  or  more,  be  that  charge 
called  royalty,  depletion  or  amortization.  The  analysis  of  the 
cost  elements  that  enter  into  the  price  of  coal,  emphasizes  our 
lack  of  specific  facts  which  can  be  supplied  in  the  future  only 
through  the  "installation  of  uniform  cost-keeping  methods  and 
uniform  and  improved  accounting  systems,"  to  quote  from  the 
declaration  of  purposes  of  the  Pittsburg  Coal  producers.  With 
the  results  of  such  bookkeeping  in  hand,  more  definite  reply  can 
be  made  to  the  public's  appeal  for  relief  from  high  prices. 

Cost  of  a  Ton  of  Anthracite  Coal  from  Mine  to  Cellar  * 

A  ton  of  anthracite  of  stove  coal  (2240  pounds)  delivered  in 
the  coal  bin  in  New  York  District  at  $7.25  averages  at  the  mine 
$3.55  and  yields  a  return  on  the  investment  of  20  cents. 

*  From  an  advertisement  signed  by  the  leading  anthracite  coal 
operators.     Philadelphia  Press,  Feb.  14,  1916. 


Retailing  Coat  (Average)  per  ton: 

Rent  of  office  and  yard;    lighterage,  handling  at  yard, 
breakage,  cartage,  administration  expenses,  and  re- 
tailer's profit  per  ton  $2.15 
Transportation  (Average)  per  ton: 

Freight  from   Lehigh  and  Schuylkill  regions  to   New 

York  harbor  1 .  55 

Production  cost  (Average)  per  ton: 

Colliery  cost,    per   ton,   labor   (approximately   $1.80), 

materials  of  all  kinds,  royalty,  taxes,  depreciation  of 
coal  lands  and  equipment,  administration  expenses, 
and  accident  indemnities  per  ton  2.40 

Loss  on  small  sizes  of  coal  sold  at  less  than  cost  of  pro- 
duction .95 

Operator's  earnings,  available  for  return  on  investment 

(Latest  report  of  U.  S.    Census  shows  less)  .20 


$7  25 


Anthracite  coal  as  it  comes  from  the  mine  is  a  mixture  of  all 
sizes,  from  lump  to  dust,  and  contains  a  certain  amount  of  rock, 
slate  and  bone. 

The  report  of  the  U.  S.  Geological  Survey  for  1914  gives  the 
amount  and  percentage  of  each  size  produced  in  that  year  in  the 
entire  field.  By  using  these  percentages  and  by  assigning  to 
each  size  of  coal  the  average  receipts  at  the  mine  realized  by  some 
of  the  larger  companies  it  is  determined  that  each  100  tons  of  coal 
dumped  into  the  breaker  would  produce  the  following  average 
results: 


Tons 

Average 

Price 
Realized 

Total 
Value 

Domestic     sizes     sold 
above    the    cost    of 
production  in  1914 

Sizes  sold   below   cost 
of  production  in 
1914. 

Lump  and  broken 

Egg 

Stove 

Chestnut 

Pea 

Buckwheat 

Rice 

Barley 

5.30 
12.40 
20.60 
23  00 
II  .80 
13.40 
6  80 
6.70 

$2.95 
3  45 
3.55 
3.75 

1.30 

$15.63 
42.78 
73.13 
86.25 

50.31 

100.00 

268    1 0 

Average  value  per  ton,  $2.68. 

Losses  from  shrinkage,  storage  and  rehandling  bring  the  price 
down  to  about  $2.60  per  ton  at.  the  mine,  to  which  adding  loss  in 
small  sizes  sold  below  cost  of  production  (95  cents)  makes  a 
total  of  3.55  per  ton.  The  anthracite  operator  gets  from  55  cents 
to  $3.75  per  ton  for  his  coal,  selling  40  per  cent  of  his  output  below 
the  cost  of  production. 


CHAPTER    XVIII 
HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


ACCOUNTING  SYSTEM  IN  A  LARGE  HARDWARE 
FACTORY 

A  large  factory  employing  over  4000  men  makes  a  great 
variety  of  hardware  and  other  metal  products.  Its  cata- 
logues list  over  40,000  varieties  of  product  and  the  machining 
and  other  manufacturing  operations  required  are  stated  to 
be  over  a  million  in  a  year.  What  follows  is  largely  taken 
from  the  "  accounting  code  "  of  this  factory  and  from  ex- 
planations kindly  furnished  to  the  author  by  the  manage- 
ment.    By  request  the  name  of  the  factory  is  omitted. 

The  accounting  and  other  clerical  work  having  relation 
to  records  of  production  and  of  costs  is  divided  into  three 
divisions:  Accounts,  Statistics  and  Costs.  The  accounting 
system  records  the  results  of  the  business  by  classes  of  product 
and  as  a  whole,  the  statistical  system  furnishes  additional 
information  required  by  the  management,  and  the  cost  system 
is  designed  to  furnish  approximate  costs  per  unit  of  each  kind 
and  size  of  finished  product. 

Productive  Classes  and  Departments.  The  whole  prod- 
uct of  the  factory  is  divided  into  "  Productive  Classes,"  rep- 
resented by  the  letters  A,  B,  C,  etc.,  and  the  different  manu- 
facturing departments  in  which  the  work  is  done  are  repre- 
sented by  other  letters  or  by  numbers  of  rooms,  these  letters, 
both  of  product  and  departments,  and  room  numbers  being 
used  as  accounting  symbols.  The  principal  departments  are 
Forge,  Iron  Foundry,  Brass  Foundry,  Press  Shop,  Rod  Shop, 
Machine  Shop,  Plating  Department,  Power  Plant;  and  minor 
departments  are  assembling  and  inspecting  rooms  for  different 
products,  stock  rooms,  japan  shop,  pattern  shop,  tool  shop, 
and  drawing,  packing,  shipping  and  other  rooms. 

All  work  done  in,  and  all  material  used  in,  any  department 
is  charged  directly  as  far  as  possible  to  the  Class  Accounts, 
A,  B,  C,  etc.,  and  all  expenditures  that  cannot  be  so  charged 
are  either  charged  to  the  department  or  to  one  of  several 
factory  or  other  expense  accounts  or  to  a  betterment  or  a 
special  account.  Charges  to  department  or  to  expense 
accounts  are  summarized  monthly  and  apportioned  to  the 
several  class  accounts  according  to  definite  rules  established 
by  the  Account ing  Bureau. 

Accounting  Symbols.  The  terms  used  in  the  accounting 
system  are  defined  as  below,  and  each  is  given  a  letter  symbol. 

Direct  Labor:     All  labor  spent  directly  on  salable  products. 

Material.  All  material  that  becomes  part  of  the  salable 
products. 

Indirect  Labor:  All  labor  that  cannot  be  charged  directly 
to  one  or  more  classes  of  product. 

Supplies:  Articles  other  than  "  Material  "  used  in  the 
plant. 

180 


Shop  expenses:  Indirect  labor,  supplies,  salaries  and  other 
items  charged  to  expense  accounts. 

Stores:  Stocks  of  materials  and  supplies  (not  finished 
products). 

Betterments:  Additions  to  and  betterments  of  property. 
Divided  into  three  groups  (1)  Real  Estate  and  Buildings,  (2) 
Power  Plant,  Equipment  and  Fixtures,  (3)  Machinery,  Tools, 
Patterns  and  Flasks. 

The  Expense  accounts  are  subdivided  into  fifteen  groups, 
each  with  a  symbol  number,  viz.: 

1.  Indirect  Wages,  including  foremen,  machine  setters, 
time-keepers,  time-study  men,  route-board  men,  order  clerks, 
stock  handlers,  watchmen,  inspectors,  yard  laborers,  cleaners, 
sweepers,  janitors,  errand  boys  and  other  miscellaneous  labor. 

2.  Bonus  payments  for  overtime. 

3.  Welfare  work. 

4.  Freight  and  express. 

5.  Slippage,  difference  between  estimated  and  actual  labor 
costs. 

6.  Shop  stationery. 

7.  Maintenance  of  existing  equipment  and  fixtures. 

8.  Maintenance  of  machines,  tools,  patterns  and  flasks. 

9.  Maintenance  of  real  estate  and  buildings. 

10.  Water. 

11.  Gas  and  electricity. 

12.  Works  salaries,  general. 

13.  Wages  paid  to  injured  employees,  and  pensions. 

14.  Spoiled  work.  Lost  labor  and  material  on  work 
scrapped. 

15.  Miscellaneous  supplies  and  charges  not  otherwise  pro- 
vided for. 

Stores  accounts  are  subdivided  into  several  sub-accounts, 
each  with  its  appropriate  symbol,  such  as  SC,  Central  Scrap 
Store;  SE,  Plant  Supply  Store;  SP,  Press-shop  Metal; 
SS,  General  Supply  Store;  SU,  Power-house  Fuel;  SV  Other 
Stores. 

Stores  Records.  Stores  records  are  kept  in  the  Stock  and 
Order  Department  on  Perpetual  Inventory  or  Balance  of 
Stores  Cards,  size  7jX4^  in.  The  headings  on  the  end  of 
each  card  are  printed  as  below: 


WHERE  STORED                                                                         ACCOUNT 

LIST  No.                                               PART  No. 

1 

Shelf                                       Max.                     Econ.  Quan. 
Sect.                          Drawer                             |  Min. 

a 
s 

Form  HF1.    Balance  of  Stores  Card. 


HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


181 


And  the  heads  of  columns  are  printed  on  a  long  side,  as      made  on  a  long  paper  strip,  giving  the  Clock  No.  of  the  work- 
follows:  man,  and  the  In  and  Out  time,  a.m.  and  p.m. 

Each  morning  the  clock  records  of  the  day  before  are 
transcribed  to  Time  Summary  Tickets,  one  for  each  man,  on 
which  his  total  hours  for  a  week  are  added  up. 


ORDERED     I    RECE-TED 

nSn  IcEi-rPERED 

ALLOTMENT  RECORD 

ALLOTED                                SHIPPED 

ttehj  (mutty 

..... 

Quantity 

Quantity  !|.,i. 

Quantity 

Data 

Number 

Quantity  |u»i*|  Quantity 

Balance 

(-f  linea 

--. 

oer  inct] 

) 

"| 

!  1 

1 

Entries  are  made  on  these  cards  from  purchase  invoices 
or  other  records  as  goods  are  received,  and  from  Stores 
Tickets,  signed  only  by  authorized  persons,  when  goods  are 
delivered. 

In  the  stores  connected  with  the  iron  and  brass  foundries 
and  with  the  fuel  supply  (other  than  steam  fuel)  charge  books 
are  kept.  At  the  end  of  each  month  the  Accounting  Bureau 
summarizes  the  entries  in  these  books  and  makes  proper 
credits  and  debits,  and  extends  and  summarizes  the  Stores 
Tickets,  crediting  and  debiting  the  proper  accounts. 

On  all  stores  tickets  are  entered  the  symbol  of  the  room  in 
which  the  materials  or  supplies  delivered  from  the  stores  are 
to  be  used,  also  the  charge  account  symbol,  which  is  the  class 
symbol,  A,  B,  C,  etc.,  if  the  materials  are  to  be  used  directly 
in  one  class  of  product,  or  a  department  symbol,  M,  N,  P, 
etc.,  if  they  are  to  be  used  in  a  department  on  more  than  one 
class,  or  the  symbol  X  to  show  that  they  are  to  be  used  for 
general  purposes  and  cannot  be  charged  either  to  a  Class  or 
to  a  Department,  or  a  Betterment  Account  symbol  XA,  XC, 
etc.,  if  they  are  to  be  used  for  betterments. 

Every  expense  charge  is  indicated  by  a  numerical  symbol 
(1  to  15)  followed  by  the  symbol  of  a  Class,  or  of  a  Depart- 
ment, or  by  X. 

Example.  Miscellaneous  supplies  (15)  for  the  Press  Shop 
(P)  would  be  charged  to  15P  if  they  were  to  be  used  on  work 
of  various  classes.  A  repair  part  (8)  for  a  press  used  in  Class 
A  goods  exclusively  would  be  charged  to  SA,  but,  if  for  a 
press  used  for  more  than  one  class  of  work,  to  SP. 

Expense  Charges.  Indirect  (or  so-called  "  Non-produc- 
tive ")  labor  is  charged  on  labor  or  job  tickets  in  the  same 
way  that  material  is  charged  on  store  tickets.  For  example  a 
charge  for  the  wages  of  a  bus-foreman  who  spends  all  his 
time  on  Class  A  work  is  1A;  if  he  spends  half  his  time  on  Class 
A  and  half  on  Class  C,  the  charge  is  §  1A,  5  1C.  If  his  time 
cannot  be  charged  directly  to  a  class  or  to  a  department  then 
the  charge  is  IX. 

In  this  particular  factory,  accounts  are  kept  for  selling  and 
administrative  expenses  and  with  branch  offices  and  stores. 
Each  is  subdivided,  with  numerical  symbols  representing 
salaries,  traveling  expenses,  rent,  stationery  and  supplies, 
telegrams,  postage,  etc.,  to  which  any  expenditure  on  behalf 
of  these  accounts  is  charged.  Thus,  if  Chicago  office  (53) 
sends  a  telegram  (117)  about  Class  A  goods  the  charge  is 
53A,  117. 

Time-keeping.     Credit    to    Workman   on  Pay  Roll. 
Verification  of  Pay  Roll. 

The  time  of  each  employee  is  registered  by  a  Day  Clock 
Recorder,  which  is  placed  in  each  room  or  group  of  rooms 
occupied  by  from  100  to  250  employees.     The  clock  record  is 


flTFTI    *-ig 

00  M     Time  Summary  Ticket 

Name 

Date 

A.M. 

P.M. 

Total  Hrs. 

Irregularity 

(9  lin 

•s  l  \  per 

inch) 

| 

ChecUrA                                              Ar 

pro1 

Form  HF2.    Time  Summary  Ticket  (5X3-in.). 

The  work  done  by  each  man  during  a  week  is  reported  to 
the  Pay  Roll  Room  by  jobs,  as  each  job  is  finished,  on  Day 
Work  Credit  and  Piece-work  Credit  Tickets.  If  a  man's 
job  is  not  finished  at  the  end  of  the  week  a  new  job  ticket  is 
issued  to  him  or  to  his  foreman  for  the  next  week.* 


|HF  3  I        1-10 

1 '       2UOJW 

Day  Work  Credit  Ticket 

Fin. 

Total 

Hours 

Amount 

Start 

Room 

Dept. 

Clock  No. 

Name 

Chg.  Acct. 

Mach.  No.                          O.H.S. 

Part  No. 

Order  No.                            Day  Rate 

List  No. 

and  Description  of  Work 

Hours 

Pieces 

Value 

Rate 

Value 

Form  HF3.     Day  Work  Credit  Ticket  (5jX3i  in.). 
A  similar  ticket  of  a  different  color  is  used  for  piece  work. 


^ '    6IKW") 

Room  No— 
Dept 


Piece  Work  Credit  Slip 


Clock_No_ 
Work 


.Cut  No- 
Name_ 


Chargc 
_  Acct.  _ 

Order 
No: 

-Rate_ 


Date       Mach.  No.     Started 


(s  lines  5  per  inch) 


Time  in 
Hours 


Pes.  Finished 


Approved  _ 


Duplicate  printed  in  red  ink  below  the  crease  line,  on  the  reverse  side. 


Form  HF4.    Piece-work  Credit  Slip  (5jX3  in.). 

*  In  this  factory  a  "week"  is  a  pay-roll  period,  the  month  being 
divided  into  four  periods  ending  respectively  on  the  8th,  15th,  22d, 
and  the  last  day  of  the  month. 


182 


BOOKKEEPING  AND   COST  ACCOUNTING 


These  tickets  are  made  in  duplicate,  by  carbon  paper,  and 
one  copy  is  kept  in  the  office  for  record  and  the  other  goes  to 
the  workman,  who  hands  it  back  when  the  job  is  complete. 

As  the  tickets  are  returned  to  the  Pay  Roll  room,  the  time 
clerks  place  them  in  the  order  of  the  Clock  Nos.,  by  depart- 
ments, and  file  them  along  with  the  Time  Summary  Slips 
until  the  end  of  the  week.  They  are  then  tabulated  on  a 
Burroughs  adding  machine  for  Clock  Nos.,  Hours  and 
Wages  for  each  job,  and  Total  Hours  and  Total  Amount  for 
the  week,  for  each  man.  The  total  hours  thus  found  are 
checked  against  the  total  hours  on  the  man's  Time  Summary 
Ticket.  If  any  discrepancy  is  found  it  is  investigated  and  the 
error  corrected. 

The  Pay  Roll  Sheets  for  each  room  are  then  made  out. 
Stencils  with  the  names  of  the  men  and  their  clock  numbers, 
in  the  order  of  the  numbers,  are  put  hi  an  Addressograph 
machine,  and  thus  printed  on  the  sheet,  and  the  hours  and 
amount  are  entered  on  it  by  a  recording  and  adding  machine. 


On  pay  day  each  man's  money  is  put  in  a  pay  envelope  ou 
which  his  name  and  number  are  printed,  the  envelopes  are 
arranged  in  the  order  of  the  numbers  and  put  in  cases  for  each 
room  and  sent  to  the  rooms.  The  men  form  in  line  in  the 
order  of  their  numbers  and  as  they  march  past  the  pay 
window,  and  are  identified  by  their  foreman  who  stands  by, 
each  receives  his  envelope  from  a  clerk. 

The  Hollerith  Tabulating  Machine  Record.  When  the 
Day  Work  and  Piece-work  Credit  Tickets  have  been  checked 
against  the  Time  Summary  Tickets  the  records  on  them  are 
punched  on  Hollerith  Tabulating  Cards  for  use  in  the  Hollerith 
sorting  and  tabulating  machines.  (For  description  of  these 
machines  see  page  135.)  The  information  given  on  the 
punched  cards  consists  of  the  following  items:  Year,  Month, 
Week,  Room,  Clock  No.,  Productive  Piece  Work,  Expense 
Piece  Work,  Special  Shop  Orders;  Expense  or  Operation 
No.,  Class  Letter  (kind  of  product),  Order  No.,  Betterment 
or  Repairs,  Hours,  Pieces,  Amount. 


1 

Mo 

1 
m 

131517 

YEAR 

Special 

Clock 

Special 

OJ4 

Operation 

Charge 
Acct. 

Order  Number           i  w 

!  d 
I  0* 

Betterment 

or 

Repairs 

i4 

Pieces 

Amount 

2 

2 
3 

141618 

0  0 

0  0  0  0 

0  0 

5*X 

0  0 

OOOOOjO  0:0 

X 

0  0  0  0 

0 

0  o;o 

X 

0  0  0  0  0 

3 

ROuM 

0  0  0 

0 

0  0  0  0 

0  0 

0  0 

4 

4 

1  1  1 

1   1 

1111 

1    1 

1 

1111 

1   1 

1   1    1   1    111    1j1 

1 

1111 

1 

1  i;i 

11111 

1    1 

1    1 

5 

2  2  2 

2  2 

2  2  2  2 

2  2 

2 

2  2  2  2 

2  2 

2  2  2  2  212  22 

2  2  2  2 

2 

2  22 

2  2  2  2  2 

2  2 

2  2 

in    6 

3  3  3 

3  3 

3  3  3  3 

3  3 

3 

3  3  3  3 

3  3 

3  3  3  3  3  3  3J3 

3  3  3  3 

3 

3  33 

3  3  3  3  3 

3  3 

3  3 

7 

4  4  4 

4  4 

4  4  4  4 

4  4 

4 

4  4  4  4 

4  4 

4  4  4  4  4|4  4  4 

4  4  4  4 

4 

4  44 

4  4  4  4  4 

4  4 

4  4 

8 

5  5  5 

5  5 

5  5  5  5 

5  5 

5 

5  5  5  5 

5  5 

5  5  5  5  5  5  5  5 

5  5  5  5 

5 

5  5;5 

5  5  5  5  5 

5  5 

5  5 

9 

6  6  6 

6  6 

6  6  6  6 

6  6 

6 

6  6  6  6 

6  6 

6  6  6  6  6  6  6  6 

6  6  6  6 

6 

6  6  6 

6  6  6  6  6 

6  6 

6  6 

10 

7  7  7 

7  7 

7  7  7  7 

7  7 

7 

7  7  7  7 

7  7 

7  7  7  7  7  7  77 

7  7  7  7 

7 

7  7  7 

7  7  7  7  7 

7  7 

7  7 

'     11 

8  8  8 

8  8 

8  8  8  8 

8  8 

8 

8  8  8  8 

8  8 

8  8  8  8  8  8  8  8 

8  8  8  8 

8 

8  8  8 

8  8  8  8  8 

8  8 

8  8 

12 

9  9  9 

9  9 

9  9  9  9 

9  9 

9 

9  9  9  9 

9  9 

9  9  9  9  9  9  9  9 

9  9  9  9 

9 

9  9^9 

9  9  9  9  9 

9  9 

9  9 

Form  HF5.    Card  for  Tabulating  Machine.     (Full  size.) 


All  the  cards  are  kept  in  piles  by  rooms  or  departments  until 
the  end  of  the  month.  There  may  be  as  many  as  100,000  of 
them.  The  sorting  machine  is  then  used  to  sort  them  in  any 
way  that  may  be  desired  for  statistical  or  accounting  purposes, 
such  as  by  departments,  classes  of  product,  order  numbers, 
etc.,  and  after  subdivision  by  this  machine  the  tabulating 
machine  is  used  to  add  up  the  totals  of  hours,  pieces  and 
wage  amounts  of  any  subdivision,  for  example,  the  monthly 
total  of  hours,  pieces  and  productive  day  work  on  Class  A  in 
Room  No.  104.  The  total  figures  thus  obtained  are  written 
down  in  the  columns  of  statistical  sheets  for  the  use  of  the 
statistical,  cost  and  accounting  departments. 


Monthly  Statistical  Sheets  Derived  from  the  Hollerith 
Cards,  Pay  Roll  Distribution 

The  Hollerith  cards,  punched  according  to  the  records  on 
the  Day  Work  or  Piece-work  Credit  Slips,  are  arranged  in 
piles  representing  producing  rooms  or  groups  of  rooms,  or 
departments,  about  40  piles  in  all.  Each  pile  is  then  run 
through  the  sorting  machine  and  divided  and  tabulated  so 
as  to  give  the  total  hours  and  amounts,  which  are  entered  in 
writing  as  the  machine  shows  the  total  figures,  on  a  long 
statistical  sheet  which  has  hours  and  amount  columns  for 
each  of  the  following  headings: 


HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


1S3 


11 FC 

STATISTICAL    DISTRIBUTION   OF  PAYROLL  FOR  MONTH  OF                                                            1916 

Room 
or  Oept. 

PRODUCTIVE   PIECE   WORK 

TOTAL  PIECE  WORK 

PROD.  DAY  WORK 

BETTERMENTS 

SPECIAL 

TOTAL  PROD. 

Regular  Operations 

Special  Operations 

Hours 

Amount 

Hours 

Amount 

Hours 

Amount 

Hours 

Amount 

Hours 

Amount 

Hours 

Amount 

Hours     |    Amount 

21-41 

B.  Group 

C.  " 

Power 

Transportation 

Messengers 

Sweepers 

Yard 

General 

[About  so  lines 
in  all) 

1 

„_, 

TOTAL  EXPENSE  WORK 

REGULAR  EXPENSE  NOS. 

{Seven  other 
number  colums) 

TOTAL 
PAYROLL 

1 

2 

Hours                                    Amount 

Hours 

Amount 

Hours 

Amount 

Hours 

Amount 

1 

Form  HF6.    Statistical  Distribution  of  Pay  Roll. 


This  sheet  distributes  the  total  pay  roll,  giving  both  hours 
and  amount  of  wages,  whether  day  work  or  piece  work,  by 
rooms  or  departments,  whose  symbols  are  given  in  the  column 
at  the  left,  and  by  the  different  kinds  of  work  named  in  the 
headings  of  the  hours  and  amount  columns. 

A  second  sorting  and  tabulation  of  the  cards  is  made  for 
the  Accounting  Department,  giving  amounts  only  and  not 
hours  of  labor,  dividing  the  labor  into  Direct  and  Indirect, 
and  subdividing  each  into  classes  of  Product,  as  A,  B,  C,  for 
so  much  of  the  labor  as  can  be  directly  charged  to  such 
products;  into  labor  for  making  different  kinds  of  supplies, 
SE,  SF,  etc.,  for  betterments  XA,  YC,  etc.,  and  for  special 
orders  not  otherwise  classified.  One  large  sheet  is  made  for 
Direct  (or  so-called  "  Productive  ")  Labor,  and  another  for 
Indirect  or  "  Non-productive." 

Of  the  latter,  as  much  as  is  possible  is  entered  in  the 
"  Class  "  columns  A,  B,  C,  etc.,  on  the  basis  of  special  studies 
made  by  the  management  of  the  Accounting  Department 
(for  example,  part  of  the  time  of  a  foreman  in  the  Press 
Shop  might  be   charged   to   one   or   more   of   the   classes, 


and  part  to  the  Press-shop  symbol,  P),  and  the  remainder, 
called  the  "  Residuum,"  is  charged  to  the  various  supply, 
betterment,  department,  or  room  expense  symbols.  When 
the  "  Residuum  "  columns  are  added  up  their  totals  have  to 
be  apportioned  in  some  way  to  the  several  classes  of  products, 
A,  B,  C,  or  to  supply  or  betterment  accounts,  or  to  special 
orders  which  do  not  come  under  these  headings.  The  prin- 
ciple upon  which  this  apportionment  is  made  is  to  charge  the 
"  Residuum  "  of  any  department  to  the  different  classes  in 
proportion  to  the  direct  labor  done  in  that  department  for 
these  classes.  For  example,  if  30  per  cent  of  all  the  direct 
labor  of  department  M  is  done  for  Class  A,  and  the  total 
"  residuum  "  of  department  M  for  a  given  month  is  $1000, 
then  $300  of  that  amount  would  be  charged  to  Class  A. 

Accounting  Distribution  of  Pay  Roll 

This  distribution  shows  charges  against  Classes  or  De- 
partments. It  distributes  from  rooms  into  classes.  The 
figures  are  amounts  only,  not  hours,  taken  from  the  second 
running  of  the  cards  through  the  tabulating  machine. 


Productive 


Rooms  or  Dept. 

Class 

SE                  SF         I         SS                  ST 

Special 

Better- 

N. Y. 

Total 

Mfg.  Rooms 

(Twelve  columns) 

Total 

(Four  columns  for  different  kinds  stores  or 

Orders 

ments 

Office 

Prod. 

Rooms  64-66 

A,  B,  etc.,  to  L) 

supplies) 

Dept.  C 

Dept.  D 

Dept.  L 

etc. 

* 

Other  Rooms 

(Headings  continued  on  Second  Page) 

Non-Phoductive 

Rooms  or  Dept. 

Residuum 

Total  Non-Pro- 
ductive 

(Twelve  columns 

Mfg.  Rooms 

L,  M,  N,  354,  P,  R,  T,  U,  V,  SF,  etc. 

Others 

A  to  L) 

( 1 5  columns) 

Form  HF7.     Accounting  Distribution  of  Pat  Roll  for  Month. 


184 


BOOKKEEPING  AND   COST  ACCOUNTING 


The  Non-Productive  (or  indirect)  Labor  is  charged  directly 
as  far  as  possible  to  the  Classes  of  Product,  A,  B,  C,  etc., 
on  the  basis  of  special  studies  by  the  manager  of  the  Account- 
ing Bureau:  thus  the  time  of  the  foreman  of  the  Press  Shop 
would  be  charged  as  far  as  possible  to  Classes  A,  B,  C,  etc., 
and  the  amount  not  so  charged  is  called  Residuum,  charged 
to  Press  Shop  or  to  any  other  department  to  which  the  fore- 
man rendered  service.  This  Residuum  is  charged  at  the  end 
of  each  month,  by  journal  entry,  to  the  Classes  in  proportion 
to  the  productive  labor  done  in  that  department  for  these 
classes. 


J.  E.  No.  201 
Feb.  1916 
Posted  to 
Works  Ledger 


Journal  Entry 


Subject 


Distribution  of  Pay  Roll  as  shown  in  sheets  "  Accounting 
Pay  Roll  Distribution." 


Con- 

Class 

Description 

trolling 

or 

Detail 

Account 

Dept. 

Dr.  Work  in  Progress,    Labor 

100,000 

15,000 

30,000 

etc. 

Dr.  Work  in  Progress,   Expense 

100,000 

20,000 

40,000 

etc. 

Dr.  Residuum  Expense 

20,000 

L 

4,000 

M 

6,000 

N 

2,000 

etc. 

Dr.  Power  Plant 

2,000 

Dr.  Betterments 

1,000 

YR 

200 

Dr.  Special  Shop  Orders 

3,000 

YT 

800 

Dr.  Stores 

2,000 

£E 

500 

SS 

600 

etc. 

Dr.  Melted  Metal 

10,000 

MP  Iiod 

6,000 

MT  Brass 

4,000 

Dr.  Priyate  Ledger   (Charge  for  some 

work  not  pertaining  to  Factory 

Product.) 

100 

Cr.   Priyate    Ledger    (for   sum   of    Dr. 

entries 

238,100 

Journal  Entry 


J.  E.  No.  202 
Feb.  1916 

Posted  to 
Works  Ledger 


Subject 


Materials  purchased,  as  shown  in  Invoice  Record  Sheets 


Con- 

Class 

Description 

trolling 
Account 

or 
Dept. 

Detail 

Dr.  Stores 

50,000 

SA 
SB 
etc. 

20,000 
20,000 

Dr.  Expense  Supplies 

10.000 

SC 

etc. 

5.000 
2,000 

Dr.  Power  Plants 

10,000 

F 
D 

9,500 
500 

Dr.  P.etterments 

5,000 

Y  R 

Y  T 

3,000 

2,000 

Cr.   Priyate  Ledger 

75,000 

By  the  above  entries  Private  Ledger  Acct.  (which  is  the 
same  as  "Company"  or  "New  York  Office")  is  credited  with 
everything  that  the  Company  does  for  the  factory  in  the 
way  of  sending  checks  to  meet  its  pay  rolls  and  paying  its 
bills  for  purchasing  of  all  kinds,  and  the  debit  entries  divide 
the  total  sums  thus  credited  among  the  several  principal 
controlling  accounts  and  subordinate  accounts  kept  in  the 
Factory  Ledger. 

Numerous  other  journal  entries  are  made  each  month 
from  other  statistical  sheets,  distributing  the  "residuum  ' 
expenses  of  departments  M,  N,  P,  etc.,  the  several  subor- 
dinate store  accounts,  melted  metal,  expense  supplies, 
power  plant,  repairs,  crediting  these  accounts  and  chargii  g 
maintenance  and  other  expense  accounts,  the  several  pro- 
ductive classes,  betterment  accounts  and  special  accounts, 
such  as  Experiments,  and  Adjustment  Accounts,  which 
are  used  to  spread  over  a  year  or  longer  certain  charges 
such  as  Insurance,  Taxes,  Extraordinary  Repairs,  which 
should  not  be  charged  against  the  product  of  the  particular 
month  in  which  they  are  incurred  or  are  paid  for. 

The  object  of  all  these  entries  and  counter  entries  is 
finally  to  distribute  and  post  in  the  Factory  Ledger  all  the 
monthly  cost  of  running  the  factory  (which  in  the  first  two 
entries  has  been  credited  to  Private  Ledger  Account)  to  the 
cost  of  producing  the  several  classes  of  goods,  and  to  better- 
ment and  other  accounts  which  represent  assets. 

The  journal  entries  are  not  made  in  a  book,  but  on  loose 
sheets.  They  may  originate  from  the  statistical  clerks  who 
make  the  sheets  for  distribution  of  labor,  stores,  and  expense 
accounts,  or  from  an  officer  of  the  company  who  has  au- 
thority to  determine,  for  example,  whether  a  certain  expend- 
iture shall  be  charged  as  a  betterment  or  as  a  repair,  or 
what  adjustments  shall  be  made  for  changes  in  value  of 
material,  but  all  journal  entries  before  being  posted  are 
verified  and  passed  upon  by  an  auditor  or  other  authorized 
person. 

Works  Ledger 

The  Works  Ledger,  into  which  the  Journal  Entries  are 
posted,  is  of  an  unusual  form,  designed  especially  to  mini- 
mize clerical  labor,  and  to  get  a  great  amount  of  informa- 
sion  recorded  in  a  small  space  where  it  may  easily  be  found 
by  officers  who  may  have  occasion  to  use  it. 

Each  account,  whether  controlling  or  subordinate,  is  given 
a  single  page,  which  lasts  usually  a  whole  year,  except 
Residuum  Account,  which  has  a  page  for  each  month,  as 
there  are  many  cross-entries  and  adjustment  entries  to  be 
made  in  this  account.  The  ruling  of  the  ordinary  accounts 
is  as  follow- : 


Works  Ledger 

1916 

Labor 

Expense 

Material 

Other  Accounts 

Total 

Jan. 

Feb.  etc.  to 
Dec. 

- 

— 

— 

- 

- 

- 

Total 

HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


is;, 


A  page  of  Residuum  Expense  Account,  which  contains 
the  remainder  of  the  expenses  and  supplies  that  have  not 
already  been  distributed  to  the  Classes  of  Products  appears 
as  follows  (the  actual  page,  of  course,  has  many  more  en- 
tries, and  the  amounts  are  not  round  figures,  as  here  shown). 

Works  Ledger 
January,  1916  Residuum  Expense 


Total 

Jour. 

Mfg. 

Rooms 

Rooms 

Dept. 

Dept. 

All 

Entry 

Acct. 

7-16 

22-31 

L 

(Several  Cols.) 

Other 

No. 

Rooms 

18,700 

01 

1400 

4000 

8000 

5300 

2,900 

OS 

100 

200 

1000 

800 

800 

20 

36 

20 

500 

55 

500 

16,320 

1300 

300 

20 

3000 

7200 

4600 

The  figures  italicized  above  are  written  in  red  ink.  Black 
figures  are  debits  and  red  figures  credits  to  Residuum, 
except  the  red  ink  figures  at  the  bottom,  which  are  the  net 
credits  (difference  between  black  and  red  figures)  of  the 
accounts  named  at  the  head  of  the  columns.  The  red  ink 
total,  816,320,  is  the  debit  balance  of  Residuum  which 
remains  to  be  distributed  by  a  journal  entry  to  Manufac- 
turing Acct.  (a  control  account)  and  to  its  Class  subdivisions, 
A  to  L,  which  entry  will  close  Residuum  Account  for  the 
month,  leaving  no  balance. 

The  distribution  is  made  on  the  following  principle,  the 
Residuum  of  Mfg.  Acct.  ($1300)  is  apportioned  to  the  Classes 
in  proportion  to  the  ratio  which  the  productive  labor  charged 
to  these  classes  bears  to  the  total  productive  labor,  and  the 
residuum  of  the  rooms  and  departments  is  apportioned  to 
the  classes  in  the  ratio  which  the  productive  labor  charged 
to  the  several  classes  from  the  rooms  and  departments  bears 
to  the  total  productive  in  these  rooms  and  departments, 
with  the  exception  of  the  balance  of  the  last  column,  "AH 
Other  Rooms,"  including  Power  Plant  and  other  rooms  in 
which  little  of  no  productive  labor  is  done,  which  is  treated 
in  the  same  way  as  Mfg.  Acct. 

For  example,  if  the  total  productive  labor  charged  from 
the  several  departments  and  rooms  to  the  classes  is  8100,000 
for  the  month  a  statement  is  made  showing  its  subdivisions 
as  below,  using  round  figures  in  thousands  of  dollars  for 
convenience. 


Productive  Labor 


Total 

Mfg.  Accounts. 
Rooms  7-16 
Rooms  22-31 
Dept.  L 
Other  Depts. 
Other  Rooms 


100 
10 
20 
20 
15 
20 
15 


A       B 


Thousands  of  Dollars 


II) 
1 

15 

20 
3 

10 

5 

20 
4 

10 

4 

10 

7 

6 

1 
4 

5 

2 

4 

2 

3 

4 

2 
1 

1 

6 

4 

3 
1 

2 
1 

4 
4 

1 

The  residuums  are  now  to  be  divided  in  the  proportions 
of  the  figures  up  the  several  columns  A  to  L  to  the  figures 
in  the  total  columns,  as  in  the  statement  below. 


D 

1STRIBUTION 

of  Residi-cm 

Total 

A 

B 

c 

D 

E 

F 

G 

H  etc. 

Mfg.  accounts 

1,300 

130 

390 

520 

260 

Rooms  7-16 

300 

50 

190 

50 

50 

50 

Rooms  22-31 

20 

10 

6 

A 

Dept.  L 

3,000 

400 

800 

400 

600 

800 

Other  Depts. 

7,200 

720 

360 

2160 

1080 

720 

1440 

360 

360 

Other  Rooms 

4,500 

300 

1200 

300 

300 

1200 
3814 

1210 

1200 

16,320 

1600 

1170 

3850 

1386 

1420 

1870 

A  journal  entry  is  now  made  and  posted  crediting  Re- 
siduum $16,320  and  charging  the  several  classes  the  figures 
at  the  foot  of  the  respective  columns. 

After  all  the  posting  for  the  first  month  of  the  year  is 
done  a  trial  balance  taken  from  the  Works  Ledger  would 
show  a  credit  balance  of  Private  Ledger  account  which  would 
be  the  sum  of  the  inventory  of  raw  material  and  supplies 
Jan.  1,  of  the  invoices  of  material  received  during  the  month, 
which  have  been  certified  to  the  Company  for  payment, 
and  of  the  sums  received  from  the  Company  for  the  pay 
rolls.  All  the  other  accounts  would  have  debit  balances, 
representing  the  charges  made  to  the  several  productive 
class  accounts,  to  betterments,  special  orders  and  adjust- 
ments. The  debit  balances  of  the  class  accounts  represent 
all  the  charges  made  against  these  accounts  during  the  month 
for  material,  supplies,  labor  and  expense,  whether  the  work 
done  exists  at  the  end  of  the  month  in  the  shape  of  work 
in  process,  finished  goods  in  the  warehouse,  or  goods  shipped. 
In  the  succeeding  months  the  debit  balances  of  these  accounts 
and  the  credit  balance  of  Private  Ledger  increase,  no  counter 
entries  for  goods  shipped  being  made,  and  at  the  end  of  the 
year  the  balances  are  a  summation  of  all  the  work  done 
during  the  year.  The  Works  Ledger  has  nothing  to  do  with 
commercial  accounts,  but  is  concerned  only  with  total 
monthly  cost  of  production  by  classes. 

The  three  departments  of  Accounting,  Statistics  and 
Costs  are  in  this  factory  kept  separate.  The  Accounting 
department  furnishes,  as  above  stated,  the  total  costs  by 
classes.  The  Statistics  department  furnishes  records  of  men, 
hours,  materials,  etc.  The  Cost  department  furnishes  unit 
costs  of  product,  piece  rates,  etc. 

Determination  of  Costs.  In  the  factory  referred  to  costs 
are  determined  by  a  special  invest'gat  on  of  each  piece  and 
of  each  operation.  The  raw  material  for  a  piece  or  a  given 
number  of  pieces  of  the  same  kind  is  weighed  and  it  is  priced 
(for  "  Recorded  Cost  ")  at  the  average  price  of  a  five-year 
period.  The  product  of  the  weight  and  price  per  pound  less 
the  value,  at  a  standard  price,  of  the  scrap  returned  from  the 
operations  is  recorded  as  the  Cost  of  Material.  On  small 
work  it  is  commonly  figured  per  100  pieces.  The  direct  labor 
cost  is  determined  by  a  time  study  of  each  operation,  which  is 
made  for  the  purpose  of  fixing  piece  rates. 

The  sum  of  the  costs  of  material  and  of  direct  labor  so 
found  is  called  the  Prime  Cost.  The  overhead  expense  added 
is  a  percentage  on  direct  labor  which  has  been  determined  for 


136 


BOOKKEEPING  AND  COST  ACCOUNTING 


the  department  or  rooms  in  which  the  operation  is  done,  or 
for  the  Class  of  Product. 

A  "  Part  Cost  "  card  is  made  for  each  part  or  piece. 

The  material  is  entered  in  the  first  line  below  the  headings 
and  the  several  operations  in  their  regular  sequence  below. 
If  the  department  or  room  overhead  is  used  it  is  figured  sep- 
arately for  each  operation,  but  if  Class  overhead  is  used  all  the 
direct  labor  cost  of  the  several  operations  is  added  together 
and  the  percentage  applied  to  the  sum. 

It  is  recognized  that  this  method  of  figuring  overhead  is  not 
as  accurate  as  the  machine-rate  method,  but,  as  the  articles 
made  are  generally  of  light  weight,  and  the  machines  used  in  a 
given  department  or  room,  or  for  a  given  class,  do  not  vary 
greatly  in  first  cost  or  in  cost  of  upkeep,  it  is  considered  that 
the  error  of  the  method  is  not  great  enough  to  warrant  the 
use  of  a  more  accurate  method  which  would  cost  more  for 
clerical  work. 

The  amount  of  the  standard  percentages  to  be  added  for 
overhead  in  the  several  classes  or  departments  is  determined 
by  the  Accounting  Department  from  the  statistics  of  one  or 
more  previous  years. 

The  sum  of  the  standard  costs  of  material,  labor  and  over- 
head is  what  is  known  as  the  "  Recorded  Cost,"  (Shop  Cost) 
which  is  entered  on  the  "  Part  Cost  "  card  for  permanent 
use.  When  a  "  Present  Cost  "  of  any  article  or  part  is  needed 
for  any  purpose,  the  Part  Cost  card  is  taken  from  the  file  and 
its  record  is  copied  on  a  Present  Cost  Estimate,  on  which  there 
is  added  to  or  subtracted  from  the  recorded  or  standard 
figures  any  "  Adjustments  "  or  changes  that  have  taken  place 
in  prices  of  material  or  labor  or  in  overhead  ratio,  the  amounts 
of  such  changes  being  determined  by  the  Accounting  De- 
partment and  furnished  by  it  to  the  Cost  Department 
monthly. 


When  the  annual  inventory  is  taken  the  values  are  figured 
on  the  "  Recorded  Cost  "  basis,  and  are  then  adjusted  to 
correspond  with  the  present  costs. 

The  standard  overhead  percentage,  or  ratio,  added  to  the 
direct  labor  cost  is  based  on  statistics  of  indirect  labor  and 
other  actual  expenses,  not  including  depreciation,  but  in. 
figuring  present  costs  adjustments  are  made  for  depreciation, 
and  for  "  slippage,"  which  latter  term  in  defined  as  follows: 
Slippage  is  the  difference  between  estimated  labor  costs  as 
shown  on  the  unit  cost  cards  and  actual  labor  costs.  Exam- 
ple: A  unit  cost  card  shows  an  operation  covered  by  a  piece 
rate  based  on  manufacturing  in  large  quantities.  The  opera- 
tion is  performed  on  a  small  quantity  at  day  work  rates, 
which  results  in  a  labor  cost  in  excess  of  that  shown  on  the 
unit-cost  card.  The  difference  in  cost  is  termed  slippage  and 
is  included  in  shop  overhead  expenses. 

An  allowance  for  spoiled  work,  determined  for  each  class 
or  department  from  statistics  of  previous  years,  is  also  made 
in  figuring  the  overhead  cost. 

Because  of  the  clerical  labor  involved  in  rewriting  all  the 
cost  cards  at  one  time,  changes  in  actual  cost  of  labor,  due  to 
a  general  increase  of  wages  are  not  made  on  the  Recorded 
Cost  cards  except  by  stamping  on  them  with  a  rubber 
stamp.  (For  example,  Dir.  Labor  Inc.  5  per  cent,  Jan.  1, 
1915.) 

Group  Cost  Cards. — Group  costs  are  made  by  adding  the 
separate  totals  of  the  Part  Cost  cards  to  the  labor  and  over- 
head cost  of  assembling  the  group. 

Cost  of  Finished  Product  Cards  are  made  up  from  the 
Part  and  Group  cards  and  from  the  labor  and  overhead  cost 
of  assembling  and  finishing  the  cost  of  the  completed  article. 
A  total  is  made  showing  the  cost  in  a  "  no  finish  "  condition, 
and  the  cost  of  finishing  is  then  added. 


Comp'd  by 

Datp 

COST  OF  FINISHED  PRODUCT 

Des 

List 
Dep 
Cat. 
Cost 

SO 

Revis'd   by 
Article 

Changes 

Date 

Based  on 

Nn. 

Metal 

per                    Auth'n  No. 

SUMMARY 

FINISHES 

Original 

Revised 

Revised 

Labor 

Overhead 

Material 

Total  No  Fin. 

Finish 

Total  No  Fin. 
Finish 

Total  No  Fin. 
Finish 

Total 

Total 

Total 

Add  Finish 

Total  No  Finish. 

Total  No  Fin. 

Finish 

Total  No  Fin. 
Finish 

Total  No  Fin. 

Finish 

Total  Cost 

Total 

Total 

Total 

Part  or 
Group  Nos. 

Description 

Weights,      \ 
Prices  and     EDept. 
Opn  Nos. 

Hours 

Overhead 

Labor 

Overhead 

Material 

Labor 

Overhead 

Material 

Sym. 

Rate 

(ss  ruttd  tinea,  i  per  inch) 
45  on  other  aide  of  cord.) 

Form  HF8.    Cost  of  Finished  Product. 


HARDWARE  TACTORY  AND  MACHINE-SHOP  ACCOUNTS 


187 


The  unit  costs  of  products  that  are  regularly  made  and 
for  which  piece  rates  have  already  been  established  are  found 
by  examination  of  job  and  material  tickets  for  operations, 
parts,  groups,  and  assembled  product,  and  adding  the  de- 
partment or  class  overhead  computed  by  the  accounting 
department.  For  new  products  time  studies  are  made  and 
the  first  orders  are  watched  in  their  progress  through  the 
shop  to  obtain  actual  labor  and  material  costs.     For  esti- 


mates on  a  product  not  yet  made,  the  product  is  analyzed 
into  its  component  parts  for  weights  of  raw  material  and 
of  finished  piece,  and  the  labor  of  making  and  assembling 
together  with  the  overhead,  are  estimated  on  the  basis  of 
recorded  costs  of  similar  products,  and  a  figure  is  added 
for  a  factor  of  safety. 

A  sample  of    an  estimate  of  cost  is  given  below. 

Records  of  actual  cost  are  kept  on  cards  which  are  filed 


b»»                                                                                 ESTIMATE  OF  COST 

Name                                                                                                                                                                                         Estimate  No. „_ 

naiwc PRESENT        RECORDED 

Article     /^^^c-U^o^e'Cn^/    (/~!£clZ&- 

Cost  per 

C<5>J 
100 

COST 
/OO 

Finish 

A%ro       > 

1  1  1  0 

sAAjUS-   Ostmtel/ 

Labor 

<+M<!3 

Lf  000 

Overhead 

<=A  i/Q3§1° 

3  bOO 

Request  from                                                                 Order  No.                                                         Class    y? 

Material 

n  z/o 

7.000 

.,/      , 

SHOP  COST 
Total 

26.X<)b 

1  4.b0 

Ouantity  Basis                                                                Compiled  by                                                     Date         ^/sLS/tb 

cV>W_ 

.     2.  92.d'  '' 

2./  -f 

i     1 

} 

Patterns,  Tools  &  Drawings                                                                                                                               recorded 

■  tZud 

2  9.2  2. 

/(,.7<i 

Description 

PER   'OO 

Wgts.,  Prices 
and  Cut  Nos. 

Hours 

Dept. 

Overhead 

Overhead 

Material 

Total 

Sym. 

Rate 

PLATE 

*«*>jL    * 

ffi 

dshxesh  tELAsvAd/ 

— -Z*3             -~- 

*&— 

V 

0 

0 

130 

10 

@-                       g 

RE-INFORCING  COLL  AR 

J&/t*r2as 

id&iz/-  j&ze£ 

3d  ^Sv  (S>.OS 

5 

0 

1 

ro 

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Form  HF9.     Estimate  of  Cost. 


for  convenient  reference.  Small  cards  giving  total  cost  of  an 
article  at  different  dates  and  with  different  finishes  are  also 
kept. 

The  system  described  appears  to  be  fairly  satisfactory  for 
a  large  factory  that  makes  a  great  variety  of  goods.  To 
carry  it  on  with  any  degree  of  accuracy  requires  the  division 
of  the  product  into  classes,  that  each  class  receives  its  proper 
apportionment  of  burden,  and  that  careful  records  and 
statistics  are  kept  of  base  or  normal  costs  as  established  in 
a  year  of  normal  business  or  deduced  from  average 
results  of   a  number  of  years,  and   of  the  variations  in 


wages,  in  cost  of  material  and  supplies,  and  in  selling  prices  or 
discounts. 


Original  and  Revised  Costs 

A  revision  of  the  Cost  of  Finished  Product  is  required 
when  new  schedules  of  raw  material  prices  and  overhead 
expenses  are  issued  from  the  Treasurer's  office  (usually  at 
yearly  intervals,  but  monthly  when  market  prices  are  rap- 
idly fluctuating),  and  also  when  changes  of  method  of  man- 
ufacture are    reported  by  the    planning  room.     Orders  for 


188 


BOOKKEEPING  AND  COST  ACCOUNTING 


changes  of  method  are  referred  to  the  Cost  Bureau  if  the 
changes  affect  the  cost  of  product. 

Estimates  on  Special   Work;   Cancellation   and   Changes 
of  Orders;  Spoiled  Work;  Defective  Returned  Goods 

In  making  estimates  for  special  work  outside  of  the  regular 
line  of  products  special  charges  are  made  for  each  setting 
up  of  machines,  to  cover  office  work  on  each  order.  The 
Cost  Bureau  estimates  the  office  time  required  to  make 
cancellations  and  changes  of  orders,  and  makes  a  fixed 
charge  per  hour  for  clerical  work.  When  any  work  is  spoiled 
tickets  are  made  out  by  the  foreman,  and  the  Receiving 
Room  makes  out  tickets  for  all  defective  work  returned. 
These  tickets  are  sent  to  the  Cost  Bureau  and  to  the  Ac- 
counting Bureau  for  record,  and  are  used  to  furnish  data  for 
modifications  of  estimated  costs  of  finished  articles  and 
for  proper  charges  to  the  several  classes  of  product. 

Annual  Inventory 

Inventory  cards  are  issued  to  the  foreman  the  clay  before 
beginning  to  take  the  inventory.  The  cards  are  serially 
numbered,  and  verified  when  returned  to  see  that  none  are 
missing.  They  are  priced  by  the  Cost  Bureau  on  the  "re- 
corded cost"  basis,  for  material  and  labor,  and  the  totals 
are  then  modified  by  the  latest  changes  in  "revised  costs." 
Expense  ratios  for  different  classes  of  product  are  furnished 
by  the  Accounting  Bureau  to  the  Cost  Bureau.  The  expense 
ratio  is  applied  on  the  productive-labor  cost. 

Method  of  Charging  Supplies  Issued  by  Stores 

A  fine  example  of  the  use  of  modern  labor-saving  methods 
in  the  accounting  methods  of  this  factory  is  shown  in  the 
use  of  a  tabulating  machine  card  which  serves  the  combined 
purpose  of  a  requisition  on  Stores  for  material,  a  bill  from 
the  stores  for  the  material  delivered  and  a  tabulating  card 
which  when  passed  through  the  tabulating  machine  with 
other  cards  will  give  the  monthly  total  of  the  kind  of  material 
as  to  quantity  and  price,  the  total  charge  for  supplies  to  the 
charge  account  and  its  subdivisions  and  the  total  credit  to 
the  Stores.  The  punched  figures  on  one  such  card  and  their 
meaning  are  as  follows:  0016,  branch  of  the  power  depart- 
ment; 53,  the  numerical  symbol  for  U,  meaning  Power 
Plant;  0131,  the  kind  of  material;  70,  room  No.;  0010, 
10  lbs.;  Lb.,  0020,  20  cents;  65,  symbol  for  SE,  a  credit 
supply  account. 

By  different  settings  of  the  tabulating  machine  any  com- 
bination of  groups  of  two  or  more  items  may  be  sorted  and 
their  monthly  totals  obtained,  for  example  the  total  amount 
of  supplies  delivered  by  store  room  SE  to  the  Power  Plant, 
or  the  total  weight  and  price  of  asbestos  cement  delivered 
by  the  storeroom. 

Statistical  Reports 

The  department  of  Statistics  prepares  from  the  large 
statistical  sheets  of  distribution  of  labor,  material  and 
expense,  and  from  the  Works  Ledger  such  monthly  and  an- 
nual statistics  as  are  desired  by  the  officers  and  directors 


of  the  Company  for  their  information.  They  are  usually 
tabulated  on  6X9  in.  cards,  ruled  with  columns  for  months. 
One  of  these  cards  gives  the  statistics  of  a  single  class  of 
product  or  a  single  account  of  any  kind,  by  months,  for 
several  years.  A  line  at  the  bottom  of  the  card  gives  the 
monthlj'  average  for  each  year. 

A  monthly  wage  report  is  made  on  a  card  ruled  with  col- 
umns for  months  and  side  heads  as  below: 


mt-ni 

MONTHLY  WAGES  REPORT 
19            Mn 

OPERATING  HRS. 

Jan. 

Feb.! 

Total  No. of  Op. Hrs. 

Total  Wages  per  O.H. 

Piece  Work              •■ 

Day  Work 

Indirect  Wages      " 

.0 

I  J 

MEN,  HOURS 

s-l 

Total  No.of  Men  Hrs. 

Average  No.  of  Men 

-?.5  i 

Total  Wages  perM.H. 

g~ 

Piece  Workers  per  M.H, 

r 

Day  Workers       ••       " 

s£ 

Indirect  Wages    •*      " 

•is 

i£_ 

^ 

Ratio  Indirect  Wages  toi 

£ 

Total  Wages 

Ratio  Piece  to  Direct 

1 

Total  Wages      $ 

Form  HF 14.     Monthly  Wages  Report  (9X6  in.). 

Statistics  of  wages  and  salaries  are  also  kept  by  weeks 
and  by  rooms,  and  the  men-hours  are  analyzed  by  rooms, 
productive  and  non-productive  work.  Purchases  and  in- 
ventories of  raw  material  and  of  supplies  are  reported  on 
monthly  by  classes  or  kinds,  and  betterments  are  classified 
and  tabulated.  Reports  are  made  of  the  expenditures  for 
fuel,  labor,  supplies  and  repairs  of  the  power  plant,  of  the 
daily  and  monthly  consumption  of  metal  and  fuel  in  the 
foundries  and  their  product  in  castings  and  scrap,  also 
of  the  weight  of  sheet  metal  used  and  of  product  made  in 
the  press  shop. 

Labor  Turnover 

One  interesting  bit  of  statistics  is  furnished  by  the  Em- 
ployment Bureau.  It  is  called  the  Labor  Turnover,  that  is 
the  number  of  new  men  employed  each  month  to  take  the 
place  of  those  who  have  left  or  been  discharged,  and  the 
percentage  this  turnover  bears  to  the  total  laboring  force. 
Records  are  kept  for  each  department  or  group  of  rooms. 
Although  it  does  not  appear  in  the  accounts  this  labor 
turnover  has  an  important  influence  on  costs  of  manufac- 
ture, for  every  time  a  new  man  is  hired  it  costs  something 
to  "break  him  in,"  and  until  his  output  is  equal  to  that  of 
the  man  who  left,  the  machinery  is  not  being  operated  with 
its  usual  efficiency. 


HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


189 


Monthly  Estimate  of  Increase  or  Decrease  of  Inventory, 
and  Profits  or  Loss 

A  monthly  estimate  is  made  by  classes  of  products  on  the 
assumption  that  the  ratio  (found  from  the  statistics  of  a 
preceding  year)  between  the  manufacturing  cost  (material, 
labor  and  factory  expense)  of  the  goods  sold  of  a  given  class 
and  the  sales  of  that  class  remains  practically  constant  for 
each  month  of  the  current  year.  Thus,  if  the  sales  of  a  cer- 
tain class  of  goods  amounted  in  1915  to  $1,000,000  and  the 
factory  cost  of  these  goods  was  §700,000  then  the  ratio  is 
0.70.  If  the  sales  of  this  class  in  a  certain  month  in  1916 
amount  to  1100,000  then  it  is  assumed  that  the  goods  sold 
cost  0.70  of  $100,000  or  870,000. 

If  during  the  same  month  the  total  charges  for  manu- 
facturing this  class  of  goods  is  $90,000,  the  estimated  in- 
crease of  inventory  is  found  by  subtracting  $70,000  from 
$90,000,  giving  $20,000.  If  the  charges  are  only  $60,000 
the  decrease  of  inventory  is  S70,000-$60,000  =  $10,000. 


If  the  sales  of  Class  A  in  March,  1916  amount  to 
and  the  estimated  cost  at  70  per  cent  of  sales  is 

The  difference  i3  called  "  gross  profit  " 

If  the  selling  and  administrative  expense,  and  the 
extraordinary  expenses  of  every  nature,  chargeable 
to  the  class  sales  total  of  $100,000  amount  to 


100,000 
70,000 


30,000 


20,000 


The  estimated  net  profit  for  the  month  is  10,000 

Adjustments  in  these  figures  are  necessary  if  there  have 
been  changes  in  prices  of  materials  and  in  ratios  of  shop 
expenses  to  direct  labor.  The  amount  of  these  adjustments 
will  be  found  from  the  Material  Adjustment  Account  in 
the  Works  Ledger  and  from  a  memorandum  Expense  Ad- 
justment Account  kept  outside  of  the  Ledger. 

The  adjustment  accounts  represent  the  difference  be- 
tween the  actual  expenditures  in  the  current  year  for  material 
and  shop  expense  over  the  established  prices  of  materials 
and  expense  ratios  on  which  shop  costs  (unit  cost  cards) 
are  based  and  the  inventory  is  computed. 

An  actual  inventory  is  taken  at  the  end  of  each  year,  the 
prices  being  taken  from  "unit  cost  cards."  The  prices  of  ma- 
terial on  these  cards  are  average  prices  for  a  five-year  period. 

The  labor  cost  on  these  cards  is  taken  from  lists  of  es- 
tablished piece  rates. 

The  shop  expense  ratios  on  these  cards  (ratios  to  direct 
labor)  are  based  on  the  actual  operations  of  a  certain  year. 

Having  taken  the  inventory  and  priced  it  on  the  unit 
cost  card  basis  its  value  and  the  cost  of  sales  for  the  year 
are  to  be  adjusted  in  order  to  get  values  to  be  entered  in  the 
private  ledger. 

Method  of  Making  a  Monthly  Estimate  of  Increase  of 
Inventory  and  of  Profit  and  Loss  without  a  Monthly 
Inventory. 

When  a  factory  makes  hundreds  or  thousands  of  different 
articles  the  cost  of  clerical  work  for  making  and  tabulating 
an  inventory  oftener  than  once  a  year,  even  when  a  perpetual 
card  inventory  is  kept  in  the  stores  and  the  warehouse, 
becomes  prohibitory.  The  method  described  below  of  making 
a  monthlj   estimate  of  increase  (or  decrease)  of  inventory 


and  a  monthly  profit  and  loss  estimate,  or  a  modification 
of  it,  is  in  use  in  some  large  factories. 

The  total  product  of  the  factory  is  divided  into  a  limited 
number  of  classes,  say  six  to  twelve,  and  the  monthly  totals 
of  charges  to  Manufacturing  Account,  including  .Material, 
Direct  Labor  and  Burden,  are  apportioned  to  the  same 
classes.  The  monthly  total  of  sales  is  likewise  divided,  as 
are  also  the  selling  and  administrative  expense  connected 
with  the  sales  department,  together  with  a  margin  allowed 
for  minimum  profit,  the  sum  of  these  three  being  designated 
by  the  abbreviation  SAP  below.  The  sales  of  any  given 
class  minus  S  A  P  is  called  the  "Cost  of  Sales"  of  that  class. 

From  the  statistics  of  each  month  an  estimate  is  made 
for  each  class,  charging  it  with  the  total  expenditure  for 
manufacturing  and  crediting  it  with  the  cost  of  sales.  If 
the  former  is  greater,  the  excess  is  taken  as  the  increase  of 
inventory,  provided  there  has  been  no  change  in  selling 
price  or  in  the  cost  of  materia!  labor  and  burden. 

Suppose  the  total  charges  against  Mfg.  Acct.  for  a  given 
class  in  a  certain  month  is  $1000,  that  the  sales  of  that 
class  amount  to  $1200  with  S  A  P  =  $300,  leaving  the  cost 
of  sales  $900;  then  the  increase  of  inventory  is  $1000— 
$900  =  8100. 

To  illustrate  this  method  we  will  take  an  example,  using 
small  figures  for  convenience.  Assume  that  the  statistics 
of  production  and  sale  for  a  certain  class  in  a  normal  year 
show  an  average  production  and  sale  of  1000  articles  per 
month,  a  cost  for  labor  $250;  for  expense,  $350;  for  ma- 
terial $100,  total  factory  cost  $700.  Sales  $1000,  leaving 
for  expenses  and  normal  profit,  S  A  P,  $300.  We  will  for  the 
present  assume  that  for  the  first  three  months  of  the  following 
year  complete  statistics  of  the  number  of  articles  made  and 
sold  each  month  are  available  and  that  an  inventory  is  taken 
at  the  end  of  each  month,  the  figures  being  as  follows: 


Inventory  Jan.  1.     2000  pieces  at  0. 

70  =  $1400 

Jan. 

Feb. 

Mar. 

Total 

Production,  pieces 

1200 

600 

1200 

3000 

Cost  of  Production: 

Direct  Labor 

$330 

$180 

$360 

$870 

Expense 

360 

300 

360 

1020 

Material 

144 

72 

144 

360 

Total 

834 

552 

864 

2250 

Cost  per  piece 

$0,695 

0  92 

0   72 

Advance  in  wage  rates  per  cent 

10 

20 

20  abov< 

normal 

Advance  in   price  of  material,   per 

cent 

;o 

20 

20  abov 

i  normal 

Relative  cost  for  expense,  per  piece 

7 

e 

7 

(As  compared  with  normal  expense  cost  of  35  cents  per  piece.     The  expense 
per  piece  in  February  is  high  on  account  of  the  small  product.) 


Total 


Sales,  pieces 

Advance  in  selling  price,  per  cent 

Sales  price 

SAP 

Apparent  Net  Cost  of  Sales 


Jan. 

Feb. 

Mar. 

1500 

1000 

1000 

10 

15 

20 

$1650 

$1150 

$1200 

400 

300 

320 

1250 

850 

880 

3500 

$4000 
1020 
2980 


190 


BOOKKEEPING  AND   COST  ACCOUNTING 


The  SAP  includes  the  actual  costs  of  selling  and  admin- 
istration plus  the  normal  minimum  profit  from  the  previous 
year's  statistics;  with  these  data  it  is  now  required  to  find 
the  increase  or  decrease  of  inventory  (pieces  and  value) 
at  the  end  of  each  month,  and  the  profit  (or  loss)  as  compared 
with  the  normal  profit. 

The  result  may  be  tabulated  as  follows: 


Jan. 

Feb. 

Mar. 

Pieces  made 
Pieces  sold 

1200 
1500 

600 

1000 

1200 
1000 

Inventory 

Inventory  at  end  of  month 

Dec.     300 
1700 

Dec.     400 
1300 

Inc.  200 
1500 

s 

\les  Account 

Net 

Charges 

Credits 

SAP    Cost 

Pieces 

Pieces 

Inven- 

tory 

2000  <S  0  70 

$1400 

Jan. 

1200  @  0  695 

834 

Jan. 

1500  @ 

.  10 

$1650 

$400 

$1250 

Feb. 

600  @  0.92 

552 

Feb 

1000  (5 

15 

1150 

300 

850 

Mar. 

1200  (a  0.72 
5000 

864 

Mar. 

1000  ® 
3500 

.20 

1200 

320 

880 

3650 

4000 

1020 

2980 

Balance 

1500 
5000 

Bal.  of 

Acct. 

670 
3650 

Prod  urt 


Cost  of  Sales 


Net  Cost    Profit 


Pieces 

Pieces 

Inven- 

2000 

Jan. 

1500  (5  0  70 

$1050 

$1050 

$1250 

$200 

tory 

Feb. 

/  500  (Si  0.70 

350 

\  500  @  0.695 

347.50 

697.50 

850 

152  50 

Jan. 

1200 

|  500  @  0.695 

(347.50 

Mar. 

{  200  @  0.695 
[  300  @  0.92 

139 

[276 

762.50 

880 

117   50 

Feb. 

600 

3500 

2510 

2510 

2980 

470 

Mar. 

1200 

Inventory: 
300  @  0.92 
1200  @0.72 

276 
864 

3650 

1  140 
3650 

5000 

The  balance  of  Sales  Account  being  $670,  and  the 
inventory  $1140,  the  difference,  $470,  is  the  profit,  as  in 
the  last  column  of  the  table. 

The  profits  are  over  and  above  the  normal  or  minimum 
estimated  profit  P  of  the  S  A  P  as  above  defined. 

It  should  be  observed  that  the  apparent  value  of  the 
inventory  and  of  the  profit  are  both  enhanced  on  account 
of  including  in  the  inventory  value  300  pieces  at  $0.92  made 
in  February  when  the  manufacturing  expense  was  excessive 
on  account  of  the  decrease  in  factory  production  which  might 
have  been  caused  by  an  accident  or  by  a  strike.  If  these 
300  pieces  were  valued  at  $0.72,  the  cost  in  March,  then  the 
inventory  value  would  be  1500  pieces  at  $0.72  =  $1080,  or 
$60  less  than  the  recorded  value,  and  this  $60  would  be  sub- 
tracted from  the  $470  profit,  making  it  $410. 

Now  suppose  that  we  have  no  records  of  the  number  of 


pieces  made  and  sold,  nor  of  the  inventory  each  month, 
and  it  is  desired  to  obtain  an  estimate  of  the  increase  or 
decrease  of  the  inventory  and  a  profit  and  loss  estimate  at 
the  end  of  each  month.  The  data  of  production  costs  are 
as  follows: 


Jan. 

Feb. 

Mar. 

Direct  Labor 
Expense 
Material 

$330 
360 

144 

$180 
300 

72 

$360 
360 

144 

Advance  in  wages,  per  cent 
Advance  in  material,  per  cent 
Expense,  relative  to  normal  product 

834 
10 
20 

6 

7 

552 
20 
20 

10 

864 
20 
20 

7 

We  first  reduce  the  actual  costs  to  their  equivalent  normal 
costs  by  dividing  them  by  percentage  adjustment  factors, 
as  below. 


:     Jan. 

Feb. 

Mar. 

330+1.10 

=  300 

180+1    20  =  150 

360  +  1.20  =  300 

360  +  f 

=  420 

300  +  "      =210 

360 +  f        =420 

144+1.20 

=  120 

72  +  1 . 20  =  60 

144  +  1.20  =  120 

840 

420 

840 

Actual  cost  as 

above 

834 

552 

864 

Decrease 

6 

Increase         132 

Increase           24 

We  then  in  like  manner  reduce  the  receipts  from  sales 
to  their  equivalent  base  prices,  by  dividing  them  by  factors 
for  advance  in  selling  prices. 


Jan. 

Feb. 

Mar. 

Total 

Receipts  from  sales 
Divide  by 

Equivalent  normal  sales 
Less  normal  SAP,  30% 

SI  650 

1    10 

$1500 

450 

$1150 

1    15 

$1000 

300 

$1200 

1    20 

$1000 

300 

$4000 

$3500 
1050 

Normal  Sales  Cost 
Normal  Mfg.  Cost 

1050 
840 

700 
420 

700 
840 

2450 
2100 

Inc.  Dec.  of  Inventory: 

Add  original  Inventory, 

$1400 
Net  receipts  from  sales 
Less  normal  Sales  Cost 

Dec.  210 

1190 
1250 
1050 

Dec.    280 

910 
850 
700 

Inc.      140 

1050 
880 

700 

Dec.    350 

2980 
2450 

Apparent  profit  on  sales 
Apparent  loss  on  Mfg. 
Costs 

200 
-6 

150 
132 

180 
24 

530 
150 

Apparent  net  profit 

206 

18 

156 

380 

This  apparent  profit  is  based  on  the  inventory  being  taken 
at  the  normal  value,  $1050  at  the  end  of  March,  making 
no  allowance  for  increased  costs  of  production.  A  statement 
may  be  made,  however,  which  will  show  the  inventory  values 
and  the  calculated  profits  based  on  advanced  inventory 
values  as  follows: 


HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


mi 


Normal 

Actual 

Profit 

Loss 

Inventory 

$1400 

Sold 

$1050  for 

$1250 

8200 

Made 

840  for 

834 

6 

Balance 

350 
840 

Sold   350   1 
Sold  350  / 

700  for 

850 

150 

Made 

420  for 

552 

132 

Balance 

490 
420 

Sold   490    \ 
Sold   210  / 

700  for 

880 

180 

Made 

840 

864 

24 

Normal 

Cost 

536 

156 

Inventory 

210 
840 

276 
864 

Less 

156 

380 
90 

1050 

1  140     Increase  of  value 
Profit,  as  before 

470 

Which  profit  may  be  reduced,  by  a  revaluation  of  the  inventory  on  the 
basis  of  the  March  manufacturing  costs,  increasing  the  normal  value,  $1050, 
in  the  ratio  sTu  making  it  $1080,  or  $60  less  than  the  recorded  value,  and 
reducing  the  profit  by  the  same  amount,  making  it  $410. 

In  this  manner  we  reach  the  same  result  that  was  reached 
on  the  assumption  that  a  perpetual  inventory  was  kept. 
In  the  example  it  was  assumed  at  the  beginning  that  the  in- 
ventory was  of  2000  pieces  each  at  70  cents,  totalling  $1400, 
and  that  the  total  production  was  all  of  the  same  kind  of 
pieces,  but  the  revised  example,  in  which  the  number  of 
pieces  is  left  out  of  the  calculation,  would  have  been  just 
the  same  if  the  pieces  were  of  a  thousand  or  more  different 
kinds  or  sizes,  but  of  one  general  class,  such  as  light  hardware. 

Some  of  the  other  forms  used  in  this  factory  are  shown 
below. 


REQUISITION  FOR  PARTS 


ACCT. 


Operation  No. 


Quantity  Ordered 


Description 


Ec.  Quan.  jn  Lot 


Date         I  Lot  No.  Date        [LotNo.l Date        !  Lot  No.  PaM 

Wanted  Wanted     |  Wanted  W  anted 


Quan. 

Ship'd 


Quan. 

Ship'd 


Quan. 

Ship'd 


Quan. 

Ship'd 


From._ 


MOVE  TO 


List  No. 
and 

Article 


Order  No_ 
Quantity 


_Trays 
—Boxes 


Location  of  work  in  Cage 


Parts  have  this  day  been  received 

Date  Part  No. 


Signed 


Cage  Attendant 


Quantity 


Route  Clerk  Check 


Stock  Record  Clerk 
Check 


Completes 
Lot  No, 


Indicate  by  an  X 


Rough 

Malarial 


Worked 
Material 


Form  HF10.     Requisition  for  Parts    (4|X7f  in.). 


Ihf  ill 

For  Bronze  Castings 

{Stzes  x  Sin.) 

Charge    Arrt. 

Order 
List  No. 
Part 

No 
Pnt.    No 

Diip  Date 

Onnntity 

Form  HF1 1.     Requisition  for  Bronze  Castings  (5XH  in.). 


{Size  3  %  sin.) 
Clock  N 

n.                                               R  at*» 

Name 

Date 

No.  in  Flasks 

No.  of  Flasks 

Hours 

10  lines,  3  per 

inch 

Back  of  Form  HF11. 


|hf  i-j|      (Size  8*4  *   it  In.) 

RETURNED   GOODS  REPORT 

r.1*«                                                              Harp                             191 

Quantity    List  No. 

DESCRIPTION 

Finish 

Diaposlt 

ion 

(26  I  in 

es  s  per 

nch) 

Form  HF12.    Returned  Goods  Report  (SfXll  in. 


L^^J      Operation  and  Route  Record.    Class 

Article  Part  No. 


Metal  for 
1000  Pieces 


(((  lines  i per  inch) 


Economic 
Quantity 


Dopt  or  Number  of      Daily       -istof  ArtlCl 
Ruom        Operas   i  Output  used   (or 


Form  HF13.     Operation  and  Route  Record   (6X4  in.). 


(Sizelli  x  4  in.) 

Ihf  ir,|                                                m 

1 '                               Tickler 

Room  No. 

Operation  No. 

Order  No. 

Metal 

Finish 

Due  Dat  • 

List  No. 

Quantity  Ordered 

Promise 

Description 

Room         |      Due  Date 

Room 

Due  Date 

Room 

Due  Date 

(5  lines  ijM;  per  inch) 

— 

FormHFI.5.    Tickler  (4|X4  in.). 


192 


BOOKKEEPING  AND   COST  ACCOUNTING 


,— — ,    (Sizes  xiln.) 

^^                 Tickler  Card 

Return  tn                                                                 Issiiert 

Date             U  lines  SperiAck) 

■Subject      ('  lines) 


FormHF16.     Tickler  (6X4  in.). 


A  MACHINE-SHOP'S  COST  SYSTEM 
A  certain  machine-shop  in  Philadelphia,  employing 
something  less  than  200  men,  and  manufacturing  a  few  spe- 
cialties of  its  own,  has  a  most  elaborate  cost  system,  the 
results  of  which  are  carried  into  the  general  books  every 
month.  It  furnishes  to  its  bookkeepers  a  set  of  typewritten 
instruction  books.  From  these  instruction  books  the  fol- 
lowing notes  have  been  taken,  some  of  them  in  greatly 
abridged  form. 

INCENTIVE 

The  incentive  for  having  a  cost  department  is  to  establish 
a  legal  base  for  the  selling  price  of  an  article  and  to  determine 
the  amount  and  source  of  profit  for  the  different  products. 


[apTTI 

DETAILS  OF  RETURNED  GOODS  TICKET 

Ticket  N 

a. 

PiE»    TNirt 

Quantity 

List  No. 

Article 

Finish 

Price 

Extension 

Total 

Size  of  ticket 

>%  x  5  in. 

is  ruled  Unci 
Punched  for  I 

oose  leaf  book 



—— -i 

Form  HF17.    Details  of  Returned  Goods  Ticket. 


FUNDAMENTAL   PRINCIPLES 

a.  Make  the  cost  of  manufactured  products  made  for 
sale  during  a  certain  period  equal  total  expenditure  of  the 
business  for  the  same  period.* 

b.  Connect  the  costs  with  the  general  bookkeeping. 

c.  The  books  must  keep  perpetual  inventories  accounts 
of  raw  material  on  hand — totals  only. 


Expense 


1.  Direct  Expense 

2.  Construction 

3.  Indirect  or  Overhead 


1   a.   Labor  charges 

may  be     .   .  6.    Material 

incurred  by  ...      ,,     . 

i   c.    Miscell.  charges 

(not  a  or  6) . 


d.  Two  classes  of  overhead  expense : 

1.  Shop  Expense.  That  which  attaches  itself  to  the  running 
of  the- machinery. 

2.  General  or  Business  Expense.  That  which  is  incurred  by 
the  Business  or  Administration  and  which  has  no  con- 
nection with  Manufacturing. 

e.  Two  compartments  for  filing  cost  data: 

1.  For  current  period,  not  yet  entered  on  the  Cost 
Records. 

2.  Finished  data,  entered  on  the  Cost  Records. 

WAGES   RECORDS — TIME   CARDS 

Time  Cards  (three  kinds): 

The  first  card  is  issued  when  a  job  is  given  out.  It  con- 
tains blanks  for  a  complete  record  of  the  job  except  as  to 
the  material  used  in  it,  which  is  entered  in  a  "Stores  Issue" 
card  (Form  P4).  If  the  job  is  not  finished  in  one  day,  a  Con- 
tinuation card  is  issued  on  each  succeeding  day.  It  does 
not  contain  as  much  information  as  the  first  card.  The 
record  on  the  successive  continuation  cards  is  transferred 
to  the  first  card  when  the  job  is  finished.     (Forms  PI,  P2,  P3.) 


931-9 

In 
Out 

FIRST  TIME  CARD 
n         AND  BONUS  RECORD 

Total       e 
Wages  ^ 

Operation 
Symbol 

Mach. 
Time 

Time 
Allowed 

Bonus 

Time 

Bonus 
Wages 

No. 
Pes. 

$ 

Or. 

No. 

If  Job  Is  Not  Finished          r- 
Scratch  Out  This   £^- 

If  Job  Is  Finished           vie 
Scratch  Out  This^^1^17 

Mach. 
No. 

Day 

Total 

Pieces 
Finished 

Time 
Units 

Workman's                                                                                                1 
Name 

.la 
3o 

n's  No. 

A 

I  Have  Checked  These  Entries  and  Believe  Them  To  Be  ( 
Signed  by 
Hrs.  X  Cost  No.                                           1  Foreman 

rrect. 

Route 

Sheets 

Pay 
Sheet 

Cost 
Sheet 

Bonus  Earned 
Bonus  Not  Earned 

The  Above  Work  Has  Been  Inspected  And  Found 

O.K.                           Defective 

*  This  "principle"  is  fundamentally  a  wrong  one. 
of  it  on  page  200. 


See  a  criticism 


Form  PI.     First  Time  and  Bonus  Card 

Daily  Entries  on  Fay  Roll.  The  pay  roll  clerk  sorts  all 
cards  according  to  the  men's  numbers. 

Duplicate  Earnings  Record.  Make  out  each  man's  earnings 
record,  filling  in  the  man's  name,  number  and  date,  and  the 
amount  of  time  on  day's  work  and  on  bonus  work.  The 
slip  is  laid  aside  to  be  completed  later  by  listing  the  bonus 
jobs  that  are  completed.  The  original  goes  to  the  man; 
the  duplicate  is  kept  for  the  shop  record.     (Form  P5.) 

Sort  time  cards  and  bonus  and  inspection  records  accord- 
ding  to  the  Charge  Symbol  "C." 

Enter  time  on  the  respective  bonus  records;  check  fin- 
ished work  with  Inspection  Card  and  Order,  Bonus  earned 
and  not  earned. 

Day-work  time  cards  are  set  aside  until  it  is  time  to  enter 
the  value  of  labor  and  the  Relative  Cost  Factor  (explained 
later). 


HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


193 


In 

Charge  Symbol 

Out 

\J 

Department  DM 
Day  Rate 

If  Job  Is  Not  Finished 
Scratch  Out  This  ZW 

F 

If  Job  Is  Finished 

Scratch  Out  This  $3T" 

NF 

Operation 

No  ot 

PloMS 

Finished 

Mao's 

Time 

Machine 
Time 

Machine 
No. 

Workman's  Name 

Man's  No. 

DM 

I  Have  Checked  These  Entrie 

s  and  Believe  Them  To  Be  Correct. 

Signed  by  Foreman  or  his  Representative 

Route 
Sheets 

Bud  us 
R*cord 

Pay 
Sheet 

Cost  Sheet 

Mao's 

Machine 

BONUS  WORK  Jj™ 

D.H.5 

Form  P2.    Continuation  Bonus  Time  Card 


IN 
OUT 

r 

\j 

DEPARTMENT  D   M 

If  Job  is  not  finished 
Scratch  out  this     try 

F 

DAY  Rj 

\TF 

If  Job  is    finished 
Scratch  out  this  E3?" 

N  F 

Operation 

No.  of 
Pleoas 

Finished 

Man's 
Time 

Machine 
Time 

Machine 
No. 

(5  tinea,  i  per  in.) 

Wnrlrmnn'n  Namo 

Man'"  No.            D    M 

I  have  checked  these  entries 

and  believe  them  to  be  correct: 

Signed  by  Foreman  or  his  Representative 

Rout* 

Sheets 

Pay 

Sbeet 

Cost  Sheet 

Man's 

Machine 

DM1 

1 

JAY 

WOl 

<k  ; 

[ote 

Form  P3.     Day-work  Time  Card.      (4|X4|  in.) 

All  time  cards,  except  continuation  cards  which  have  been 
transferred  to  the  first  card  or  bonus  record,  must  be  given 
a  labor  value  =  man's  hourly  rate  X  No.  of  hours  he  has 
worked  on  the  job.  The  value  of  the  bonus  card  =  cost  of 
labor  for  the  time  worked+the  amount  allowed  for  bonus. 

The  charge  symbol  is  a  mnemonic  symbol,  made  up  of 
a  combination  of  letters  of  the  alphabet  and  numbers,  which 
include  the  symbols  of  the  class  of  work  done  (i.  e.,  D,  shop 
expense;  X,  part  construction;  Y,  construction;  P,  M,  G, 
T,  R,  L,  etc.,  different  classes  of  "worked  materials"  that 
are  part  of  the  finished  products),  together  with  the  symbol 
of  the  piece  or  group  of  pieces  upon  which  the  work  is  done 
or  the  symbol  of  the  particular  kind  of  expense  work. 

Relative  Cost  Factor  or  "Cost  Number."  This  is  a  number 
enterei  on  a  list  once  a  year  for  each  machine,  work-bench 
of  assembling  floor,  obtained  by  computing  the  annual  cost 


I'M  U 

In 
Out 


51.0 
52.1 


Department       M 
Day  Rate.._3.00  _ 


Order  Number 
DML 


Man's  Time 


Length  of  i     ,, 

Belt. itii. 


Belt  Symbol 


Maximum  Tenslon__  54  Minimum  Tension_ 

Cleaned  and  Creased Crease  used 

Dressed  while  in  use ?£?.»  .      Dressing  used 

Amount  taken  out Length  put  in 

Length  of  Splice _Cement  used 


Tensioi 
each 


n  in  lbs.  indicated  by  \  Bef°' 
:h  spring  balance         I  a*. 


Before  Tightening      0 


Workman's  Name 


Man's  No.      128 


C.L.         J.M.        R.S.P. 
BELT  MANS  RECORD 


DAY  WORK  5™ 


{Size 'X  x  i%  in.) 


Form  P3;.     Belt  Man's  Record 


s 


Stores  Symbol 


Charge  to  Order  No. 


Total  Weight 


Description 


Storekeeper 

Please  issue  above  to_ 


1  by  Man  to  Whom  Stores  are  Issuod_ 


Stores  described  above  have  been  Issued 


Slgnod  by  Gen,  Storekeeper 
or  his  Representative 


STORES  ISSUE 


20  M  15-10  Form  M33 


Form  P4.    Stores  Issue  Card 


YOUR  TIME  AND  EARNINGS  WERE  AS  FOLLOWS  ON 

BONUS  JOBS  FINISHED 

Bonus 
.Made 

Symbol 

Allowed 

Taken 

Saved 

Lost 

(Sine  ruled  lines) 

-  -              —i 

1 

Actual  Time  Worked 

TOTAL  EARNINGS 

TOTAL 

On  Day  Work 

On  Bonus  Work 

. 

Signed 

Form  P5.    Workman's  Time  and  Earnings 


194 


BOOKKEEPING  AND   COST  ACCOUNTING 


(indirect  expense,  not  including  wages  of  the  operator)  of 
maintaining  the  machine  in  operation,  viz.:  the  sum  of  the 
rental  value  of  the  space  occupied  and  its  proportional 
cost  for  power,  light,  heat,  insurance,  taxes,  interest,  repairs, 
depreciation,  superintendence,  cleaning,  watchman,  small 
tools,  stores,  clerical  expense  connected  with  the  shop, 
etc.,  and  dividing  this  annual  cost  by  3000  hours  if  the  ma- 
chine runs  days  only  or  by  6000  hours  if  it  runs  day  and 
night.  This  "Cost  Number"  is  not  the  actual  cost  per  hour 
during  the  time  the  machine  actually  runs,  but  a  relative 
figure  which  is  to  be  multiplied  by  an  expense  rate  ("DM" 
rate,  explained  below)  to  obtain  the  hourly  machine  cost. 

In  listing  the  relative  cost  numbers  for  the  several  ma- 
chines select  the  nearest  even  figures,  neglecting  decimals. 
From  10  to  50  cents  the  cost  numbers  should  increase  by 
2  cent  jumps,  and  from  50  cents  upward  by  4-cent  jumps. 

It  is  not  necessary  to  have  a  Relative  Cost  Factor  on 
any  job  which  does  not  have  to  bear  shop  expense.  On  all 
jobs  charged  to  indirect  expense  or  overhead  charges  the 
R.C.F.  is  not  worked  out.  To  make  use  of  this  factor  in 
such  cases  would  be  charging  expense  to  expense,  which  is 
a   point  in  cost-keeping  that  should  be  guarded  against.* 

Jobs  charged  to  Construction  should  have  a  R.C.F.  Jobs 
charged  to  Part  Construction,  or  work  that  adds  partly  to 
the  permanent  value  of  the  plant  and  partly  to  shop  ex- 
pense (by  reason  of  quick  depreciation)  do  not  have  a  R.C.F. 
because  the  amount  of  depreciation  is  charged  to  shop  expense,  t 

Shop  Expense  Rate  ("DM  rate").  The  total  monthly 
shop  expense  is  distributed  over  the  total  productive  work 
(worked  materials  and  construction  of  machinery  for  the 
shop)  in  the  following  manner:  The  number  of  hours  each 
machine  runs  during  the  month  is  multiplied  by  its  relative 
cost  number,  and  the  sum  of  these  products  is  divided  into 
the  total  shop  expense  for  the  month.  The  quotient  is  the 
DM  rate  for  the  month.  This  is  multiplied  by  the  "Hours 
xCost  Nos."  obtained  from  the  time  cards  for  each  job,  the 
product  being  the  amount  of  shop  expense  apportioned  to 
the  job.  The  sum  of  all  these  products  should  balance  the 
total  shop  expense  for  the  month. 

Example: 

Shop  expense  for  month    6249.75    „_»--_.„     .   .  ,, 

— = =  2.7246,  DM  rate  for  month 

Hours  X  cost  numbers     2273.84 

COST-COLLECTING   CARDS 

A  cost  card  is  made  out  for  each  job  order  or  charge  sym- 
bol that  is  in  operation,  giving  each  factor  of  the  cost,  viz.: 
wages,  stores,  and  indirect  or  overhead  expense,  the  latter 
including  both  shop  expense  and  business  expense.  At  the 
end  of  the  month  the  cards  are  collected  and  the  entries 

*  It  is  not  evident  that  charging  expense  to  expense  should  be 
guarded  against.  Suppose  a  new  crank-shaft  is  wanted  for  repairs 
of  a  machine  tool.  Its  cost  should  include  its  proper  share  of  the 
burden  of  the  blacksmith  shop,  where  it  is  forged,  and  of  the  machine 
shop,  where  it  is  finished. 

t  This  also  seems  to  be  wrong.  If  the  carpenter  shop  makes  a 
pattern  to  be  used  in  the  foundry,  where  it  depreciates  rapidly,  the 
cost  of  the  pattern  should  include  its  proper  share  of  the  burden  of 
the  carpenter  6hop. 


totaled.  The  totals  are  entered  on  a  Detailed  Cost  Sheet  of 
Worked  Materials  opposite  the  respective  charge  symbols 
and  on  an  Expense  Analysis  Sheet.     (Forms  P6  and  P12.) 

EXPENSE  DISTRIBUTION  SHEET 

The  cost-keeper  sends  to  the  bookkeeper  a  Distribution 
of  Wages,  Stores  and  Worked  Material  so  that  he  may  make 
the  proper  entries  on  the  books.  Total  wages  distributed  = 
total  monthly  pay  roll.  He  gets  from  the  bookkeeper  the 
record  of  all  expenses  not  entered  on  the  shop  records.  An 
Expense  Distribution  sheet  is  made  out  to  show  how  the 
shop  and  general  or  business  expenses  are  apportioned  to 
the  construction  and  the  worked  materials  accounts.  Form 
P15  is  a  sample  of  this  sheet  (abridged  by  omitting  the  col- 
umns for  the  several  classes  of  worked  materials).  The 
figures  given  are  random  figures,  in  even  dollars,  and  have 
no  relation  to  the  actual  figures  of  any  month. 

GENERAL  BUSINESS  EXPENSE 

Indirect  expenses  must,  if  we  are  to  apportion  them  cor- 
rectly to  the  product  manufactured,  be  split  up  into  General 
Business  Expense  and  Shop  Expense.  All  expenses  whether 
direct  or  indirect  must  ultimately  be  charged  against  the 
product. 

General  Business  Expense  consists  of  such  charges  as 
would  be  necessary  whether  the  concern  made  or  bought 
the  goods,  such  as  advertising,  salaries  of  officers,  sales- 
men's salaries,  traveling  expenses,  interest,  legal  expense, 
shipping,  etc. 

These  expenses  are  each  month  charged  on  to  the  pro- 
ductive work  done  during  the  month  in  proportion  to  the 
direct  or  productive  wages  charged  to  the  productive  jobs 
in  progress  during  the  month  as  shown  by  the  cost  sheets. 
The  total  amount  of  general  business  expense  is  divided 
by  the  total  direct  wages  charged  against  the  productive 
jobs.  This  gives  a  proportional  number  or  rate  ("B"  rate). 
Multiplying  the  amount  of  wages  on  each  job  by  this 
rate  gives  the  amount  of  business  expense  to  be  charged 
against  the  job.* 

STORES 

No  material  is  issued  without  a  written  order  (See  Form 
P4,  Stores  Issue  Card).  The  value  of  the  material  issued 
is  entered  on  this  order.  The  stores  are  classified  as  far 
as  possible  on  the  Balance  of  Stores  sheets,  or  inventory 
cards,  according  to  the  purpose  for  which  they  are  to  be 
used,  such  as  B,  business  expense;  DM,  shop  expense:  Y, 
construction  of  machines;  P,  L,  G,  etc.,  varies  classes  of 
products;  SS,  stores  for  sale.  The  stores  issue  cards  are 
totaled  for  each  class  and  a  stores  distribution  sheet  is  sent 
to  the  bookkeeper  at  the  end  of  the  month. 

Orders  are  also  written  for  Worked  Material  to  be  issued 
from  Stores  (Form  P7),  and  credit  tickets  are  made  for 
unused  or  worked  material  returned  to  stores.  (Forms  P8, 
P9). 

*  For  a  criticism  of  this  method  see  page  200. 


HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


195 


Size  iS  X  U  in. 

containing  atx forms  like  this.        DETAIL  COST  SHEET  OF  WORKED  MATERIALS 

the  side  heads,  except  the  first 
three  lines  briny  duplicated  in 

in  lover  half  of  the  sheet.                          Description                                                                                  Symbol  of  Cost  Class 

For  Month  of 

Shop  Expense  Rate 

B    Expense  Rate 

Date  Order  is 

STARTED 1  INISII1  D 

ORDER  NUMBER 

Check  line  when  order  is  finished 

Quantity  called  for  on  Order 

Kind  of  work  to  be  done 

Month  in  which  work  is  done 

TOTALS 

Mach.  hours  x  cost  numbers 

WAGES 

B                        EXPENSE 

SHOP  EXPENSE 

STORES 

Worked  Material  from  Stores 

Miscellaneous 

TOTAL  COST 

Total  Quantity  produced 

Rate  of  cost  per  unit 

, 

POSTED  BY 

Check  line  when  order  is  posted 

I 

Form  P6.     Detail  Cost  Sheet  of  Worked  Materials 


WORK   OF   THE   BOOKKEEPER 

The  bookkeeper  receives  the  Stores  Distribution  sheet 
above  mentioned  and  also,  from  the  cost-keeper  a  similar 
sheet  showing  the  Distribution  of  Labor.  From  these  he 
makes  journal  and  ledger  entries  crediting  Stores  and  Ac- 
counts Payable  (Pay  Roll)  and  charging  the  several  accounts, 
A,  B,  D,  Y,  P,  M,  G,  etc.,  for  the  stores  issued  or  work  done. 
Advertising,    Freight,    Legal   Expense,   Traveling   Expense, 


Charge  to  Order  No. 


Worked  Materials  Tag  No. 


c 


Issued  for 


Quantity  Issued 


Total  Weight 


Number 
Pieces 


WORKED  MATERIALS  ISSUED 


l  Dod 

f  Nan 

{  ers  i 

_l  kcDr 


Drawing 
No. 


Machine 
No. 


Issue 

Written 


Please  Issue  above  \ 


t  To  Bearer 
Bipned  bj  Man  for  Whom  W.  M.  »ro  Issued 


Appor. 

tioned 


Balance 
Sheet 


Tag 


Cost 
Acc't 


Worked  Materials  described  above  have 
been  Issued 


Signed1  t>j  Storekeeper 
or  hla  Representative 


Form  P7.    Worked  Materials  Issued 


Loss  on  Goods  Shipped,  No  Charge,  and  Expense  for  Out- 
side Work  charged  against  salable  products,  constitute 
miscellaneous  charges.  As  these  accounts  are  controlled 
by  the  Business  Department,  the  bookkeeper  knows  the 
proper  distribution  and  can  make  the  debit  and  credit 
entries  without  help  from  the  Cost  Department.  However, 
the  cost-keeper  has  the  detail  cost  of  all  products,  and  this 
detail  must  balance  with  the  totals  kept  in  the  books.  The 
bookkeeper  sends  to  the  cost-keeper  a  detail  distribution 
of  Miscellaneous  Expense. 


ASM 

Stores  Tag  No. 

Credit  Order  No. 

Quantity 

Unit 

Total  Weight 

Lbs. 

Total  Value 

STORES  CREDIT 

Month 

Day 

Y.-  ir 

19 

„„h                                              (3  lines) 

and  charge  to- 
Rem.irks 


The  Storekeeper  will  enter  Value  of  Stores  on  this  Card 

Tag 

Bilanoo 
Sheet 

Coot 
Sheet 

;»rd  O.K 
Shop 
Offioa 

Slg.  df  Inspector 

ir  bo  del  Wen 
Goods  to  Stores 

Signature  of  Storekeeper 
or  his  Representative 

Form  PS.    Stores  Credit 


196 


BOOKKEEPING  AND   COST  ACCOUNTING 


Worked  Materials  Tag  No. 

Credit  Order  No. 

Quantity 

Unit 

Total  Weight 

Lbs. 

Total  Value 

WORKED  MATERIAL  CREDIT 

Month 

Day 

Year 

19 

PI. .......  r.rrdit  Work  M  aterinls  Order  No. 

(5  lines,  5  per  inch  ) 

The  Balance  of  Stores  Clerk  will  enter  Value  of  Worked  Materials  on  this  Card 

Stoics 

Sheet 

Balance 
Sfabtft 

Cost 
Sheet 

CardO.K 
Shop 

Office 

Sig.  of  Inspector 

goods  to  Stores 

Signature  of  Storekeeper 
or  his  Representative 

Form  P9.    Worked  Material  Credit 

The  Journal  entries  each  month  include  the  following: 
Stores  to  Accts.  Payable,  for  materials  purchased. 

To  Stores,  for  purchased 
materials  issued.  To 
worked  materials  in 
Store  for  stored  mate- 
rial on  which  work  has 
been  done. 


Work  in  Shop   (or  Worked  f 
Material  in  Process) .... 


Mdse.  Sales  to  Stores,  for  stores  sold. 

Worked  Material  in  Process  to  Accts.  Payable,  for  Pay 
Roll. 

Miscellaneous  Expense  to  Accts.  Payable,  for  expenses 
other  than  those  charged  to  stores  or  to  work  in  shop. 

Worked  Material  in  Process  to  Miscellaneous  Expense. 

Stores  to  worked  material  in  Process,  for  materials  on 
which  work  has  been  done,  whether  finished  or  not,  returned 
to  the  stores  for  safe-keeping. 

Worked  Material  in  Stores  to  Worked  Material  in 
Process,  for  finished  or  partly  finished  product.  (The  fin- 
ished product,  ready  for  shipment,  might  be  charged  to 
Warehouse  or  to  Finished  Product). 

Entries  made  once  a  month  from  a  list  of  values  of  each 
product  finished,  made  out  by  the  cost-keeper. 

As  part  of  the  product  is  turned  into  the  store  room  as 
Partly  Finished  or  Stock  Parts,  it  is  necessary  to  transfer 
a  certain  amount  of  Worked  Material  back  to  the  shop, 
therefore  a  distribution  of  total  materials  transferred  to 
and  form  the  stores  has  to  be  made  each  month.  Both 
debits  and  credits  of  worked  materials  must  be  taken  from 
the  shop  records.  In  recording  credits  the  cost-keeper  must 
note  from  which  worked  materials  in  Stores  Account  the 
goods  were  issued,  and  the  total  amount  credited  to  Worked 
Material  in  Stores  must  equal  the  total  debit  to  Worked 
Material  in  Process  Account.  Worked  material  issued  and 
charged  to  one  of  the  indirect  expense  accounts  B  or  DM 
is  credited  to  one  of  the  subdivisions  of  the  worked  material 
in  stores  accounts,  depending  on  the  kind  of  material  issued. 


We  may  draw  from  Worked  Material  in  Stores  a  product 
belonging  to  one  class  which  is  necessary  to  complete  a  prod- 
uct of  another  class.  Thus  if  a  bolt  classified  under  is  M 
needed  for  G  the  entry  would  be  Worked  Material  in  Process, 
G,  to  Worked  Material  in  Stores,  M. 

Entry  for  worked  materials  drawn  from  stores: 


Dr.     Worked  Materials  in  Process 


Cr.     Worked  Materials  in  Store 


B 

20 

G 

1,100 

DM 

190 

L 

550 

G 

1,010 

M 

12,070 

L 

500 

P 

1,200 

M 

13.000 

R 

400 

P 

200 

T 

2,000 

R 

400 

T 

2.000 

17,320 

17,320 

Worked  material  drawn  from  stores  for  the  purpose  of 
returning  it  to  the  shop  does  not  constitute  an  expense  for 
the  current  month  if  it  is  chargeable  to  a  direct  product. 
In  case  worked  material  is  drawn  from  stores  and  charged 
to  an  indirect  or  overhead  expense  account,  then  it  must 
be  charged  in  with  the  other  classes  of  indirect  expense 
when  this  expense  is  distributed  to  the  direct  product. 

The  indirect  expense  accounts  B  and  DM  are  charged  to 
the  several  classes  of  direct  product,  Worked  Material 
in  Process,  and  to  Construction,  by  means  of  the  Expense 
Distribution  sheet  heretofore  described,  Form  P15.  If  the 
distribution  is  correct  the  B  and  DM  accounts  will  balance. 

A  list  of  Worked  Materials  Finished  during  the  month 
is  made  out,  giving  the  cost  of  each  lot  and  the  unit  cost 
(taken  from  detail  cost  sheets)  and  sent  to  the  Balance  of 
Worked  Materials  clerk.  The  total  of  each  class  of  product 
is  sent  to  the  bookkeeper  who  debits  Worked  Material 
in  Stores  and  credits  Worked  Materials  in  Process.  (Form 
P10.) 

Products  shipped  to  customers  are  charged  to  Accounts 
Receivable  for  each  class  of  product  sold,  and  the  total  of 
this  account  is  credited  to  Mdse.  Sales.  For  debits  to  this 
account  and  corresponding  credits  to  Worked  Material  in 
Stores  the  bookkeeper  gets  from  the  cost-keeper  the  cost 
value  of  the  products  shipped,  and  the  account  is  balanced 
into  Profit  and  Loss.  The  Balance  of  Worked  Materials  in 
Stores  (Form  Pll)  shows  the  cost  value  of  worked  materials 
on  hand. 

When  the  general  ledger  is  posted  and  proved  by  a  trial 
balance,  Monthly  Statements  are  made  out,  including  the 
following : 

Expense  Analysis  Sheet,  a  detailed  analysis  of  each  class 
of  expense  for  the  current  month  and  for  the  preceding 
month.  This  analysis  enables  the  administration  to  observe 
the  class  of  expenditure  which  needs  attention.     (Form  P12.) 

Finished  Materials,  showing  the  cost  of  each  lot,  unit 
cost,  and  best  previous  cost  of  each  article  finished  during 
the  month.  Each  class  of  product  is  kept  separate  and  the 
total  cost  of  each  class  given. 

Income  Account,  a  sheet  showing  the  amount  and  source 


HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


197 


{Sheet  tS  x  U  in.  Ruled  ■«  tines,  in 

blocks  of  a) 

EXHIBIT  A. 

WORKED  MATERIALS  Finished  during  the  month  ending                          Day  of 

191 

Tn  nins«PQ 

Description  or  Name  of 
Article  or  Cost  Sales 

Symbol 

Quantity 

Total  Cost  of 

Worked  Materials 

Finished  during 

the  Month 

COST  PER  UNIT 

Remark* 

This 

Month 

Last 
Month 

Average 
this  Your 
to  Date 

Avonga 
1*3 1  Year 
to  Date 

Best  Previous  Cost 

Amount 

Month 

Year 

1 1 , 

Form  P10.    Worked  Materials  Finished 


{Size  t~  x  n  in.  including  s  in.  margin  for  binding') 

BALANCE  OF  WORKED  MATERIALS 

DESCRIPTION 

NOTE:-     When  the  Material  is  in  Process  of  Manufacture  in  the  Shop,  the  Quantity  must  be  added  to  Columns  1  and  4.  After  it  has  been  delivered  to  the 
Stores,  add  the  Quantity  to  Column  2  and  subtract  from  Column  1.    When  it  is  apportioned,  add  Quantity  to  Column  3  and  Subtract  from  Column4.     In  all 
cases  bring  down  Balance  on  Hand,  in  each  Column  affected. 

1.-  Shop.    Worked  Materials. 

I.E.  Worked  Materials  in  Process  of 

Manufacture  in  the  Shop 

2.-  Stores.    Worked  Materials. 

I.E.  Worked  Materials  Temporarily  in  Stores  awaiting  further  use 

Date 

Started 

in 

Shop 

Lot 
No. 

No.  of 
Pieces 

or 
Quantity 

Cost 

Date 
Received 
from 
Shop 
W.M. 

Lot 

No. 

No.  of 

Pieces 

or 

Quantity 

Cost 

Rate 

of 
Cost 

per 
Piece 

Issued  for  Order  No. 

(^  Inn 

■  '  /"' 

inch) 

Headings 

Contit 

ued) 

When  ouantitv  available  falls  to 

as  a 

3.-  Apportioned    Worked  Materials. 

I.E.  Worked  Materials  Apportioned 

for  Orders,  but  not  yet  Issued 

4.-  Available    Worked  Materials. 

I.E.  Worked  Materials  in  Stores 
and  Shops  not  Apportioned 

Date 
Appor- 
tioned to 
an  Order 

Lot 

No. 

No.  of 

Pieces 

or 

Quantity 

Order  No.  for 
which  Apportioned 

Date 

No.  of 

Pieces 

or 

Quantity 

Remarks 

i__ 

ZJ 

Form  Pll.     Balance  of  Worked  Materials  in  Stores 


AP45          {Sheet  « 
AS  tines 

*  n  in.  linled 
in  blacks  of  3 ) 

r\FT  A  TT         A  TVT  A  T  VCIC      r\T?      rYPI7\TCrC 

Sheets.    Sheet  No. 

For  Month  of 

1Q1 

Name  or  Symbol 
of  Account 

THIS  MONTH 

TOTAL  AMOUNTS 

REMARKS 

Wages 

Salaries 

Total 

Stores 

Misc. 

Worked 

Materials 

This 

Month 

Last 
Month 

Average 

This  Month 

to  Date 

Same  Monti 
Last  Year 

Average 
Last  Year 

Form  P12.    Expense  Analysis  Sheet 


(Sheet  is  x  ti  ,'„. 

FYHIRIT  R 

Sheets, 

Sheet  No.  2 

Sub-Divisions  of  INCOME  ACCOUNT  for  Worked  Materials  and  for  Stores  Sold                                          Month  of 

191 

Description 

Symbol 

Average 

Cost 
per  Unit 

Average 

Selling 

Price 

per  Unit 

Quantity  Sold 

During  the 

Month 

Total  Cost 

of  Merchandise 

Sold  During 

the  Month 

Total  Selling 

Price  of 

Merchandise  Sold 

During  the  Month 

Profit 

Loss 

Total  Sales  of       (  Class  of  Product 

(7  Classes  here  listed  with 

from  3  to  9  lutes  allowed 

for  each. ) 

_JJ 

Form  P13.     Income  Account  for  Worked   Materials  and  for  Stores  Sold 


198 


BOOKKEEPING  AND  COST  ACCOUNTING 


(Sheet *sxu in.)                                                                                rVTII_._  _                                                     , Sheets.    Sheet  No.  1 

rXlllnl  1    r> 

Month  of 191 

rhTtf-iSYMi?    a  *"*-**"*¥  rKTT*                                             ^  '*  *"  ^rofit  anil  'oss  account)  for  month,  giving  summary. 
INCOME  ACCOUNT                                     o(  sa|es  for  the  month  and  actUal  cost  and  selling  price. 

TOTAL  SALES             (*-£*  Shipmentslof  merchandise  delivered  during  the  month,  and  delivery  and  erection  work  billed  during 

"2  a        "9  « 

TOTAL  COST               Of  merchandise  shipped  during  the  month. 

r 

-  *i  5  a  » 

1  °  a  <£,  e 

TOTAL  EROEIT           On  merchandise  Bold,  and  from  delivery  and  erection 

<    - 

c 
| 

3 

TOTAL  PROMT           From  other  sources 

TOTAL  LOSS                 On  merchandise  sold,  and  from  delivery  and   erection 

? 

TOTAL  LOSS                  From  other  sources 

NET  PROFIT 

- 

NET  LOSS 

TOTAL  COST               Of  merchandise  finished  during  the  month 

Si, 

i 

"? 

TOTAL  ORDERS         For  merchandise  on  our  books  at  end  of  month 

K 

Classes  of 

Merchandise  sold 

and  profit  derived  from  same 

THIS  MONTH 

LAST 

Cost 

Selling 
Price 

Profit 

Cost 

1st  worked  materials 

rwelve  i 
his.mon 

olunui  ,  in  four  groups. 

2nd  stores  sold 

t 

year 

each  with 

l,hree  colun 

ns'- 

Worked  materials  are  subdivided  as  follows 

26  lines  follow  for 

and  their  subdivisions 

MH    Hinge  machines 

MJ     Jarring  machines 

Form  P14.     Income  or  Profit  and  Loss  Account 


of  Profit  and  Loss  with  comparisons  and  averages  for  pre- 
vious and  corresponding  periods.     (Forms  P13  and  P14.) 

The  selling  price  for  each  class  of  product  sold  is  entered 
in  the  Register  of  Accounts  Receivable,  which  is  divided 
into  columns  for  each  class.  At  the  end  of  the  month  this 
register  is  totaled  and  the  total  of  each  class  is  transferred 
to  the  Income  sheet.  The  cost  of  each  article  shipped  is 
entered  on  the  Stores  Issue  orders,  which  are  checked  with 
the  Register  of  Accounts  Receivable  to  see  that  each  article 
is  billed  to  the  customer.  The  totals  of  each  class  are  trans- 
ferred to  the  Income  sheet  and  the  Profit  or  Loss  figured. 

GENERAL  LEDGER  BALANCE  SHEET 

Form  P16  shows  a  balance  sheet  which  is  the  conclusion 
of  the  bookkeeper's  work  for  the  month.  The  first  five 
lines  under  the  headings  Total  Assets  and  Total  Liabilities 
give  the  general  condition  of  the  business  at  the  end  of 
the  month,  with  comparisons  with  the  preceding  month  and 
with  January  1  and  July  1.  The  remainder  of  the  sheet 
subdivides  the  figures  of  each  of  these  five  lines  into  details. 

PROOF   OF   THE    COST  SYSTEM 

The  Instruction  Book,  from  which  the  matter  on  the  pre- 
ceding pages  has  been  abstracted,  contains  the  following: 

The  bookkeeping  system  offers  the  only  means  of  proof  of  the 
cost  system.  The  general  ledger  balance  sheet  offers  the  only 
representation  of  the  condition  of  the  business.  For  Droof  of 
this  note  the  second  division  on  the  Dr.  side  of  the  balance  sheet; 
there  you  will  find  the  important  part  of  Industrial  Accounting. 
These  accounts  give  the  actual  cost  of  all  material  bought  from 
outside  and  of  all  manufactured  product. 


The  bookkeeping  system  is  no  proof  of  the  cost  system. 
It  is  merely  a  method  of  condensing  and  recording  in  double- 
entry  form  the  original  data  which  are  found  in  the  wages 
cards,  stores-issue  cards,  salary  lists  and  bills  for  miscellaneous 
expenses  grouped  in  the  cost-collecting  cards,  transferred 
to  the  expense  analysis  sheet,  entered  in  the  journal,  and 
finally  posted  in  the  ledger.  If  the  original  cost  data 
contain  errors,  if  errors  are  made  anywhere  in  the  cost- 
collecting  cards,  or  if  the  theory  upon  which  the  expense 
distribution  to  cost  of  product  is  an  erroneous  one,  all 
these  errors  are  carried  forward  into  the  ledger  where  they 
are  effectually  concealed  in  Section  2  of  the  debit  side  of 
the  balance  sheet,  in  the  "actual  costs"  of  Stores,  Worked 
Materials  in  Stores  and  Materials  in  Shop,  and  in  the  errone- 
ous figures  of  Profit  and  Loss,  on  the  credit  side. 

"The  general  ledger  balance  sheet  offers  the  only  rep- 
resentation of  the  condition  of  the  business."  But  in  a  tune 
of  business  depression  it  may  not  show  that  the  "actual 
cost"  of  Stores  was  the  cost  at  which  they  were  contracted 
for  six  months  before  and  that  the  market  price  of  them 
now  is  25  per  cent  lower,  that  the  "Materials  in  Shop," 
"Cost  to  Date"  were  also  purchased  when  prices  were  high, 
and  that  the  "Worked  Material  in  Stores"  was  made  when 
the  shop  was  running  on  half  time  and  when  the  shop  ex- 
pense, DM,  was  double,  and  the  business  expense,  B,  was 
three  times  the  normal  rate.  The  Profit  and  Loss  account 
is  made  up  by  inventorying  all  the  materials  at  their  inflated 
"actual  costs,"  not  deducting  anything  for  shrinkage  in  the 
market  value  of  the  raw  material  or  for  loss  due  to  idleness 
in  the  factory  during  the  months  of  depression.    Such  is  the 


HARDWARE  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


199 


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200 


BOOKKEEPING  AND  COST  ACCOUNTING 


THE  JOHN  DOE  MANUFACTURING  COMPANY 

General  Ledger  Balance  Sheet  for  Month  of                                                191        Compared  with  Preceding  Month,  Etc. 

DEBIT 

CREDIT 

TOTAL  ASSETS 
The  Total  Assets  are  Divided  on 
the  next  five  lines  below  into-- 

TOTAL  LIABILITIES 
The  Total  Liabilities  are  divided  on 
the  next  five  lines  below  into:- 

1.  PLANT  AND  OTHER  FIXED  ASSETS 

{Four  columns 

I.  LIABILITIES  TO  STOCKHOLDERS 

(  Four  columns) 

2.  MATERIAL  IN  STORES  AND  IN  SHOP 

headings:  This 

2.  MISCELLANEOUS 

3.  CASH  AND  OTHER  OU1CK  ASSETS 

Month,  Last 

3.  EXTERNAL  LIABILITIES 

4.  UNAPPORTIONED  EXPENSES 

Month,  Jan.  *.  *9I6, 

4.  EXPENSES  APPORTIONED  IN  ADVANCE 

5.  MISCELLANEOUS 

July  t,  19*6) 

5.  INCOME.  OR  PROFIT  AND  LOSS  ACCOUNT 

These  groups  are  again  subdivided  as  follows:- 

These  groups  are  again  subdivided  as  follow  s-- 

I,  PLANT  AND  OTHER  FIXED  ASSETS 

1.  LIABILITIES  TO  STOCKHOLDERS 

Construction(Depreciation  Deducted) 

Capital  Stock 

Patents 

Surplus  Fund 

Real  Estate 

Dividends  Unpaid 

Buildings 

2.  MATERIAL  IN   STORES  AND  IN   SHOP 

2.  MISCELLANEOUS 

Stores                                                                                                  Actual  Cost 

Worked  Material  Stores                                                       Actual  Cost 

Materials  in  Shop                                                                    Cost  to  Date 

3.  CASH  AND  OTHER  QUICK  ASSETS 

3.  EXTERNAL  LIABILITIES 

Cash  in  Hands  of  Cashier 

Cash  in  Bank 

Notes  Payable 

Accounts  Receivable 

Accounts  Payable 

Individuals  and  Co's.  Miscellaneous 

Individuals  and  Co's.  Miscellaneous 

Stock  of  other  Co's. 

Mortgage 

Notes  Receivable 

4.  UNAPPORTIONED  EXPENSES 

4.  EXPENSES  APPORTIONED  IN  ADVANCE 

Insurance 

Interest 

Adjustment  Account 

Adjustment  Account 

Depreciation 

Royalties 

Accounts  in  Suspense 

5.  MISCELLANEOUS 

5.  INCOME  OR  PROFIT  AND  LOSS  ACCOUNT 

Consignment 

Profit  for  Current  Month 

Previous  Balance 

Form  P16.    General  Ledger  Balance  Sheet 


result  of  following  the  "fundamental  principles":  "The 
cost  of  manufactured  products  made  for  sale  during  a  certain 
period  equals  the  total  expenditure  of  the  business  for  the 
same  period,"  and  "Connect  the  costs  with  the  general 
bookkeeping."  "There  you  will  find  the  important  part  of 
Industrial  Accounting!" 

DISTRIBUTION  OF  GENERAL  BUSINESS  AND  SHOP  EXPENSE 

The  instruction  book  used  in  the  accounting  room  of 
the  Philadelphia  concern,  after  showing  how  the  total  busi- 
ness expense  of  a  month  is  distributed  over  the  cost  of  the 


product  in  proportion  to  the  wages  or  direct  labor  cost  on 
each  productive  job,  continues  as  follows: 

While  this  method  of  distributing  General  Expense  is  as  proper 
for  that  class  of  indirect  expense  as  any  that  can  be  devised  it 
would  not  be  proper  for  Shop  Expense. 

Two  lathes,  one  100  in.X50  ft.,  on  large  forgings,  25  cents  an 
hour  wages,  the  other  16  in.  X4  ft.,  on  fine  work,  50  cents  an  hour, 
high  skill  needed.  Now,  on  the  basis  of  wages  the  work  in  the 
small  lathe  would  have  twice  the  amount  of  shop  expense  that 
would  be  charged  to  the  100-in.  lathe.  The  work  done  on  the 
larger  machine  should  have  charged  against  it  20  times  as  much 
for  these  items  as  is  charged  against  the  work  done  on  the  smaller 
machine. 


HARDWARE,  FACTORY  AND  MACHINE-SHOP  ACCOUNTS 


201 


Large  Lathe 

Small  Lathe 

Wages 
Machine  Burden 

lOhrs.  ©0.25 
lOhrs.®  1 .00 

10  hrs.®    .25 

$2 
10 

50 
00 

10  hrs.  @  500 
10  hrs.  @  50 

10  hrs.  @  500 

$5 

00 
50 

Business  Expense 

$12 
2 

50 
50 

$5 

5 

50 
00 

$15 

00 

$10 

50 

these  amounts  are  added  up  and  the  actual  shop  expense  is 
divided  by  the  total  of  the  machine  hours  X  the  respective 
machine  rates.  This  (jives  our  Shop  Expense  Hate  for  the 
month,  by  which  we  must  multiply  the  machine  hour  times  their 
rates  charged  against  each  productive  job,  and  enter  the  amounts 
of  shop  expense  chargeable  to  the  various  jobs  on  their  respective 
cost  sheets. 

Kx  ami'I.i; 
Large  Lathe  SmMl  Lathe 


Why  should  a  day's  work  on  large  forgings  be  charged 
with  business  expense  only  $2.50,  and  a  day's  work  on  small 
pieces  $5.00?  The  large  forgings  may  be  sold  in  small 
lots  to  a  hundred  customers,  and  may  require  expensive 
advertising  and  traveling,  much  clerical  work  and  great 
effort  of  the  sales  manager,  while  the  fine  work  may  all  be 
contracted  for  to  a  customer  across  the  street,  involving 
a  minimum  of  business  expense.  Perhaps  a  better  division 
of  the  $7.50  business  expense  among  these  two  jobs  would 
be:  heavy  forgings,  $7.00;  fine  work,  50  cents.  There  appears 
to  be  less  reason  for  apportioning  business  expense  as  a 
percentage  or  direct  wages  than  there  is  for  apportioning 
shop  expense  on  that  basis. 

The  instruction  book  then  proceeds  to  say: 

The  Shop  Expense  Rate  is  a  figure  by  which  the  product.of 
the  machine  hours  on  any  producing  job  and  relative  cost  num- 
bers must  be  multiplied  in  order  to  find  the  amount  of  shop 
expense  chargeable  to  that  job.  The  total  amounts  thus  charged 
to  the  various  producing  jobs  must  equal  the  total  shop  expense 
for  the  month. 

The  machine  time  is  multiplied  by  its  hourly  rate  and  the 
amount  entered  on  the  cost  sheet.     At  the  end  of  the  month 

Large  Lathe 


Wages 

Av.  cost  of  burden 

based  on  2500  hrs. 

per  year 


Burden  this  month 


10  hrs.  ©250 
10  ®  $1   00 

$2 
10 

50 
00 

Hrs.  Xcost  No. 
1 00  X 1   00 

$12 
$100 

50 

00  | 

1 

10  hrs.  @  500 
Based  on  3000 
hrs.  pel  \  oai 
10  @  50 


250  his.  X0.5 


»5 


$5 

[12 


Total  hours  Xcost  Nos.,  both  lathes  $1 12.50 

Actual  shop  expense    $225.00  DM  rate  225 -M  12.50 -2 


Wages 
Shop  Burden 


100  hrs.  X0.  25 
100X1.00X2 


$25 
200 


$225 


nil 


250  hrs  @  50 
250  X.  05X2 


$125 
25 


$150 


no 


If  10  pieces  or  units  are  made,  Average  cost,  large  lathe, 
$22.50.  Average  cost  of  10  units  in  small  lathe,  $15.00. 
Let  us  consider  this  example  under  two  widely  different  con- 
ditions, say  those  of  July  and  August,  1914.  In  July  the 
shop  ran  full  tune  and  the  shop  expense  was  normal;  DM 
rate=l.  In  August  it  ran  only  half  time,  and  there  were 
extraordinary  expenses  for  repairs,  making  the  DM  rate  2.5. 

Small  Lathe 


Wages 
Wages 
Burden 


10  units  made,  average  cost 
5  units  made,  average  cost 


100  hrs.  @  250 
50  hrs.  @  250 

100@$1.00XI 
50  ®     1.00X2.5 


1 

July 

Aug. 

$25 

00 

12 

50 

100 

00 

125 

00 

$125 

00 

$137 

50 

12 

50 

27 

50 

250  hrs.  @  500 
125  hrs.  @  500 
250  hrs.  ®  .05  XI 
125  hrs.  ©.05X2.5 


10  units  average 
5  units  average 


July 


$125 
12 


$137 
13 


Aug. 


$62 
15 


$78 


12 


62 


These  figures  if  carried  into  the  inventory  lead  to  over- 
valuation, and  they  hide  the  fact  that  the  factory  lost 
money  in  August  on  account  of  idleness. 

The  wages  +  burden  cost  per  unit  of  forgings  made  in  the 
large  lathe  advanced  from  $12.50  to  $27.50,  while  that  of  the 

Large  Lathe 


fine   work   made   in   the   small  lathe   advanced  only  from 
$13.75  to  $15.62. 

Suppose  we  abandon  the  "DM  rate"  and  figure  this 
example  on  the  basis  of  the  average  or  normal  yearly  bur- 
den, $1.00  per  hour  for  the  large  lathe  and  5  cents  per  hour 
for  the  small  one. 

Small  Lathe 


Wages 
Wages 
Burden 
Burden 


10  units,  average  cost 
5  units,  average  cost 
Normal  burden  on  this  lathe 
Burden  earned 

Unearned  burden 


100  hrs.  ®  250 
50  hrs.  ®  250 

100  hrs.  ©  1.00 
50  hrs.  ©  1.00 


1  mo.  ©$2500  per  yr 


July 

Aug. 

$25 

00 

$12 

50 

100 

00 

50 

00 

$125 

00 

$62 

50 

12 

50 

12 

50 

208 

33 

208 

33 

100 

00 

50 

00 

108 

3? 

158 

33 

250  hrs.  ©  500 
125  hrs.  @  500 
250  hrs.  @  50 
125  hrs.  @    50 


10  units,  average 
5  units,  average 
Normal  burden 
Burden  earned 


July 


$125 
12 


$137 
13 


Aug. 


$62 
6 


$68 

13 
12 
6 


25 


202 


BOOKKEEPING  AND  COST  ACCOUNTING 


The  balance  of  unearned  burden  at  the  end  of  the  year 
is  to  be  charged  to  Profit  and  Loss. 

The  costs  for  labor  and  burden  at  which  the  products 
may  be  entered  in  the  inventory  according  to  these  several 
ways  of  figuring,  although  the  cost  of  material  and  the  rate 
of  wages  are  unchanged,  are  as  below: 


Large 
Lathe 

Small 
Lathe 

D  M  rate  =2 
D  M  rate  =  1 
D  M  rate  =2  5 

22 
12 
27 

50 
50 

50 

15 
13 
15 

00 
75 
62 

The  figures  $22.50  or  $27.50  may  be  "true  costs"  for  the 
purpose  of  the  bookkeeping  system,  which  is  to  make  the 
books  balance  at  the  end  of  each  month,  "  tying  the  costs  to 
the  general  books,"  but  they  are  utterly  useless  for  any  other 
purpose.  They  cannot  be  used  either  as  inventory  values,  as 
a  basis  of  profit  and  loss  estimates,  or  as  a  basis  for  fixing 
future  prices,  nor  are  they  of  any  use  as  statistics  which  may 
indicate  to  the  management  any  way  of  reducing  costs. 

The  charging  of  business  expense  to  cost  of  product  by 
the  "B-rate"  method,  dividing  the  total  business  expense 
of  the  month  among  the  whole  product  in  proportion  to  the 
direct  labor  cost  of  each  job  makes  the  cost-keeping  system 
still  more  inaccurate.  Take  the  labor  and  burden  costs  of 
the  large  forgings  per  unit  in  July  and  August,  as  given 
above,  by  the  DM  rate  method,  $12.50  and  $27.50,  add  to 
them  the  cost  of  material  $10.00,  and  apportion  to  them  the 
business  expense  on  the  basis  of  the  labor  cost  $2.50  multi- 
plied by  the  B  rate,  2  for  July  and  4  for  August,  and  we  have: 


July 

Aug. 

Material 

10 

00 

10 

00 

Labor 

2 

50 

2 

50 

Shop  Burden 

10 

00 

25 

00 

Business  Burden 

5 

00 

10 

00 

Total  Recorded  Cost 

27 

50 

47 

50 

Selling  Price 

32 

50 

32 

50 

Profit  5 

00 

Loss   15 

00 

By  this  method,  if  the  goods  made  in  August,  1914,  are 
not  sold  until  January,  1915,  the  loss  of  $15.00  which  should 
have  been  charged  to  Profit  and  Loss  in  1914  as  part  of 
the  loss  due  to  idleness  of  the  factory  is  wrongly  carried 
over  as  an  asset  until  1915,  and  the  loss  of  $15.00  will 
then  wrongly  appear  as  a  loss  on  the  business  of  the  year 
1915. 

Another  source  of  error  in  the  use  of  this  method  is  the 
charging  to  the  cost  of  the  work  done  in  August,  whether 
the  work  is  finished  or  not,  the  business  expense  of  the 
same  month,  when  a  large  part  of  the  business  expense  re- 
lated to  this  work,  such  as  advertising,  traveling,  sales- 
men's salaries,  etc.,  may  not  be  incurred  for  several  months 
later.  The  salesmen's  expense  in  August  may  be  partly  for 
working  off  an  accumulated  stock  made  in  preceding  months, 
and  partly  for  getting  orders  to  be  executed  several  months 
later,  with  possibly  none  of  it  for  selling  the  goods  worked 
on  in  August. 

A  large  part  of  the  total  business  expense  may  be  in- 
curred in  selling  a  minor  portion  of  the  product  or  in  intro- 
ducing a  new  product,  while  the  greater  part  of  the  product 
is  sold  with  a  relatively  small  business  expense.  It  is  not 
good  accounting  to  charge  to  the  cost  of  production  of  one 
article  any  part  of  the  business  expense  of  selling  another 
article. 

A  considerable  portion  of  the  business  expense  of  a  con- 
cern consists  of  the  salaries  of  the  president  and  general 
manager.  In  a  properly  organized  business  scarcely  any  of 
their  time  is  spent  in  connection  with  the  work  of  the  current 
month  in  the  factory;  but  nearly  all  of  it  on  work  to  be 
done  in  the  future.  If  the  factory  is  running  on  half 
time  during  the  current  month  the  whole  of  their  salaries 
should  not  be  charged  to  the  cost  of  product  of  that 
month,  thereby  increasing  the  inventory  value  of  that 
product. 

The  only  right  way  to  treat  business  expense  of  the  selling 
department  is  to  divorce  it  entirely  from  factory  costs,  and 
to  treat  it  as  an  expense  of  a  mercantile  business  which  is 
separate  from  the  factory, 


CHAPTER  XIX 
COSTS  IN  A  WOODWORKING  SHOP;    A  BAKERY;    A  TEXTILE  MILL;    A  POWER  PLANT 


COST  ACCOUNTING  FOR  A  WOODWORKING  SHOP 
The  Time-Study   Method 

Suppose  a  shop  is  making  doors  and  sash  of  standaid 
sizes  for  regular  stock,  also  doors  and  sash  of  irregular  sizes 
for  special  orders,  and  is  cutting,  planing,  grooving,  gluing 
and  finishing  a  multitude  of  shapes  and  sizes,  some  on  large 
and  some  on  small  orders;  what  sort  of  cost  system  can  be 
devised  for  it  which  will  at  the  same  time  be  reasonably 
accurate  and  not  too  expensive?  It  is  manifestly  impracti- 
ccble  to  use  the  complete  job  ticket  sj'stem  that  is  applicable 
to  a  machine  shop  or  factory  working  on  metal  products,  for 
the  reason  that  for  many  of  the  small  orders  the  cost  of  the 
clerical  work  of  the  job  ticket,  cost  summary  and  distribution 
of  burden  would  be  more  than  the  value  of  the  product. 
The  apportionment  of  the  labor  cost  also  is  a  matter  of 
great  difficulty,  for  on  some  orders  the  pieces  would  pass  in 
sequence  from  one  machine  to  another,  some  machines 
being  operated  by  one  man,  some  by  two,  and  some 
by  three,  including  the  man  engaged  in  passing  the  lum- 
ber from  the  car  or  pile  to  one  of  the  men  at  the  machine, 
and  in  the  case  of  a  very  small  order  the  actual  labor 
cost  of  the  work  done  by  one  man  might  be  only  a  fraction 
of  a  cent. 

For  example,  in  making  one  sash,  for  a  single  plate  of 
glass,  to  specified  dimensions,  from  1|  inch  stock,  the  opera- 
tions would  be: 

1.  Getting  a  board  from  a  pile  or  car  of  kiln  lumber. 

2.  Planing  it  on  both  sides. 

3.  Sawing  it  to  the  length  of  the  longest  dimension  of 
the  sash. 

4.  Returning  to  a  pile  the  piece  not  used. 

5.  Sawing  four  strips,  the  top  and  bottom  strip  of  different 
widths,  the  two  side  strips  of  one  width. 

6.  Flat-edging  one  side  of  the  top  and  bottom  strips. 

7.  Edging  and   grooving   one  side  of  each   of  the  side 
strips. 

8.  Molding  the  inner  edge  of  all  four  strips. 

9.  Cutting  four  mortises  and  four  tenons. 

10.  Drilling  holes  for  corner  pins. 

11.  Gluing  and  assembling. 

The  recording  of  the  cost  of  lumber  for  each  separate 
order  or  job  also  involves  more  clerical  work  than  it  is  worth. 
The  waste  of  lumber  in  cutting  boards  into  the  different 
widths  and  lengths  of  pieces  required  for  the  several  orders 
differs  with  the  sizes  of  the  boards  and  of  the  pieces,  and  also 
with  the  quality  of  the  lumber  as  regards  its  freedom  from 
knots  and  cracks. 


The  Accounting  System  of  a  woodworking  establishment 
may  be  made  comparatively  simple.  In  the  General  Ledger 
Factory  Plant  is  charged  with  the  appraised  value  of  the  real 
estate  and  equipment.  Factory  Operating  account  is  charged 
with  the  appraised  or  inventory  value  of  the  material  and 
supplies  on  hand  at  the  beginning  of  the  year  including  work 
in  process  and  finished  work  ready  for  shipment,  also  with 
monthly  disbursements  of  cash  for  pay  roll  and  other 
expenses,  with  accounts  payable  certified  by  the  factory  for 
payment,  and  a  monthly  charge  of  one-twelfth  of  the  annual 
cost  for  interest  on  the  total  investment  in  the  factory, 
insurance,  taxes,  and  reserve  for  depreciation.  The  account 
is  credited,  and  Sales  Department  charged,  with  the  invoices 
rendered  by  the  factory  for  goods  shipped,  at  "  factory 
cost  "  or  the  prices  agreed  upon  between  the  factory  and  the 
sales  department  as  to  what  shall  be  considered  factory 
cost. 

On  the  Factory  Ledger,  Company  account  is  credited 
with  the  charges  made  in  the  General  Ledger  against  Factory 
Operating  account,  Cash,  Lumber,  Supplies  and  Burden 
being  charged.  Cash  is  credited  with  cash  payments  for 
Labor,  Supplies  and  other  expenses.  Lumber  is  charged, 
and  Labor  and  Burden  credited  for  expenditures  connected 
with  the  handling,  storage  and  drying  of  lumber.  Work  in 
Process  is  charged  with  the  cost  of  manufacturing  operations, 
Lumber,  Labor,  Supplies  and  Burden  being  credited.  A 
Power  account  may  be  kept,  charging  it  with  labor  in  the 
power  plant,  with  fuel  and  other  supplies,  and  with  burden, 
for  its  proportion  of  interest,  taxes,  insurance,  etc.,  crediting 
it  by  Lumber,  for  the  value  of  the  steam  used  for  drying 
and  by  Work  in  Process  for  the  remainder  of  the  monthly 
expenditure  for  the  power  plant. 

Company  account  is  charged  and  Work  in  Process  credited 
with  shipments  of  finished  product. 

At  the  end  of  the  year,  when  an  inventory  of  Lumber, 
Supplies  and  Work  in  Process  has  been  taken  these  accounts 
may  show  either  gains  or  losses.  The  apparent  gains  in 
Work  in  Process  may  be  done  to  the  charges  to  Company 
for  the  products  shipped  being  higher  than  their  real  cost, 
and  the  gains  in  Burden  to  the  sum  of  the  monthly  credits 
to  Burden  and  corresponding  charges  to  Lumber  and  to 
Work  in  Process  being  higher  than  the  charges  against 
Burden  during  the  year.  The  apparent  losses  may  be  due 
to  idleness  or  inefficiency,  to  excessive  wastes  of  lumber,  or 
to  errors  in  the  costing  of  finished  product  that  lead  to  under- 
charges to  Company  for  the  goods  shipped.  All  of  these 
gains  or  losses  are  to  be  closed  into  Company  account  at 
the  end  of  the  year. 


203 


204 


BOOKKEEPING  AND  CCST  AOCOUNTING 


Statistical  records  and  charts  should  be  made,  with 
monthly  entries,  showing  the  principal  facts  of  the  progress  of 
the  business.     They  may  contain  the  following  items: 

Lumber  received — Feet  B.M.     Cost. 

Lumber  delivered  to  factory — Feet  B.M.     Cost. 

No.  of  men  employed — Man-hours.     Payroll. 

Credits  to  Company — Cash,  Accts.  Payable,  General 
Charges. 

Coal  used  in  Power  Plant.    Total  Cost  for  Power. 

Cost  of  Drying  per  1000  feet  B.M. 

Machine  Record — Hours  each  machine  ran  per  month. 

Total  Charges  to  Work  in  Process. 

Total  Credits  to  Work  in  Process  (shipments). 

Increase  or  decrease  of  Inventory  (estimated). 

Apparent  gain  or  loss  in  Work  in  Process  account. 

Charges  and  Credits  of  Burden  account. 

Apparent  loss  and  gain  in  Burden  account. 

The  recorded  gains  and  losses  should  be  scrutinized  monthly 
to  learn  whether  they  are  due  to  bookkeeping  or  costing 
errors,  to  undercharging  or  overcharging  of  burden  or  other 
costs,  to  bad  planning  of  work  or  other  inefficient  manage- 
ment, to  idleness  of  machinery,  to  unusual  waste  of  lumber 
or  other  cause.  Gains  may  be  made,  when  the  factory  is 
crowded  with  orders,  by  planning  the  work  so  as  to  bunch 
orders  and  minimize  the  time  required  for  setting  tools, 
blades  and  gages  and  for  starting  and  speeding  up  the 
machines,  and  so  as  to  lessen  the  waste  of  lumber,  also  by 
running  machinery  overtime,  so  as  to  decrease  the  propor- 
tion of  burden  to  direct  labor  cost. 

A  study  of  the  losses  may  show  that  the  chief  loss  is  caused 
by  idle  machinery  and  that  this  is  due  to  inefficiency  of  the 
sales  department.  Steps  may  then  be  taken  to  remedy 
this  condition. 

Cast  Finding  by  the  Time-Study  Method.  It  being 
impracticable  to  use  the  job  ticket  system,  obtaining  the  mate- 
rial, labor  and  burden  cost  of  every  operation  on  every  part 
or  piece  of  the  product,  the  best  method  of  determining  the 
costs  at  which  the  several  sizes  and  styles  of  product  are  to 
be  billed  to  the  sales  department  or  entered  in  the  inventory 
is  to  obtain  by  systematic  measurement,  time  study  and 
analysis  the  standard  labor,  material  and  burden  costs  of 
selected  representative  articles,  and  from  them  to  compile 
price  schedules  and  charts  from  which  the  standard  factory 
cost  of  any  size  of  any  given  style  may  be  quickly  ascer- 
tained. 

The  cost  of  material  for  sash,  for  example,  may  be  obtained 
by  measuring  the  number  of  feet,  board  measure,  of  lumber 
required  to  fill  orders  for  several  different  sizes  of  one  style 
of  sash.  When  the  figures  are  plotted  on  a  curve  showing 
the  relation  of  amount  of  lumber  to  size  of  the  sash,  the  cost 
of  material  for  any  intermediate  size  may  be  readily  de- 
termined. 

For  the  labor  costs,  studies  must  be  made  of  the  time 
required  for  each  operation  on  several  different  styles  and 
sizes  of  sash.  For  this  purpose  time-study  cards  should 
be  prepared,  as  below,  and  a  stop-watch  with  a  long  hand 
indicating  hundredths  of  a  minute  should  be  used  to  obtain 
the  elemental  times  of  each  operation. 


TIME  STUDY  MACHINE  NO.  DATE 

Operation  Rip  Sawing.         For  Sash.         Size  36  XSO  inches 
Driving  Shaft  Revs,  per  min,  4£0. 
No.  of  Blades  or  Tools  in  Use     4- 

^and       .     }    16  ft.  in  0.80  min.     Ft.  per  min.  20. 
Automatic  I 

Size  of  Plank,  16  ft.  X12  in.  XI  H  in.     Makes  material  for  5  sash. 

Waste  30  per  cent. 


Feed  { 


Test  No. 


Operations. . 


Oiling  machine. .  .  .  | 
Setting  tools  &  gages. 
Starting  &  speeding  j 

Total  preparing 

Placing  material 

Feeding  material .  .  < 


Removing  material 
Total  operating  time 


1 

2 

3 

4 

5 

Start  and 

Fin. 
Hr.  Min. 

Time 
Min. 



- 



— 



- 



- 

7.01.10 
02.00 
04.15 
04.25 
04.50 

0.90| 

2   15 
0.10 
0.25 

04.50 
04.70 

05  90 

06  20 

3.40 

0.20 
1.20 

.30 

1    70 

Aver. 


Time 

Min. 


3.20 


I   65 


The  result  of  the  above  time  study  shows  that  the  actual 
operating  time  on  a  single  plank  is  1.65  minutes,  on  the  aver- 
age, including  the  time  for  placing  and  removing  the  material, 
but  that  it  takes  3.20  minutes  for  getting  the  machine  ready 
for  doing  the  work.  This  preparing  time  would  be  the 
same  for  a  hundred  planks,  if  they  were  all  cut  to  the  same 
sizes,  as  for  one,  and  it  is  part  of  the  burden  which  must 
in  some  way  be  distributed  over  the  product. 

Burden  Distribution  The  first  step  in  planning  the 
method  of  distributing  the  burden  is  to  make  a  schedule 
of  the  annual  burden  pertaining  to  the  use  of  the  machines, 
and  to  deduce  therefrom  an  hourly  burden  charge,  or  machine- 
hour  burden,  in  the  manner  customary  in  metal-working 
shops.  The  burden  not  pertaining  to  machine  hours,  but 
rather  to  the  material  handled,  must  be  estimated  separately. 
These  estimates  may  result  in  statements  like  the  following: 

Estimated  Annual  Machine  Burden 


Machine 

A 

B 

C 

D 

E 

F 

G 

H, 

II, 

Ha 

Total 

Int.,   Ins.,   Tax 

Dep'n,  Rep's. 

$300 

$280 

$240 

$180 

$160 

$120 

$  80 

$  60 

$40 

$20 

$1480 

Rent  of  Space. . 

120 

90 

90 

60 

45 

45 

45 

45 

30 

30 

600 

Cost  of  Power. 

300 

240 

180 

150 

120 

60 

30 

30 

30 

30 

1170 

Indirect  Labor . 

220 

220 

170 

170 

120 

70 

50 

50 

50 

50 

1170 

Total 

$940 

$830 

$680 

$560 

$445 

$295 

$205 

$185 

$150 

$130 

$4420 

Est.   Hours   per 

2400 

2400 

2200 

2000 

2000 

2200 

1800 

1500 

1500 

1300 

Burden  Charge, 

Cents  per  hr . 

40 

35 

32 

28 

22 

14 

12 

12 

10 

10 

Burden  on  Material,  not  chargeable  to  machine  hours. 

Storage,  space  2000  sq.ft.  at  $2.     Int.,  Ins.,  Tax,  Dep'n,  15  per  cent..    $600 

Handling,  Piling,  etc.,  2  men  at  $900 1800 

Supervision,  Clerical  Work,  Watchman,  Insurance  on  Material,  Interest 

on  Investment  in  Material,  etc 3600 

$6000 


COSTS  IN  A  WOODWORKING  SHOP 


205 


This  $6000  is  to  be  apportioned  in  some  way  to  the  cost  of 
the  finished  product,  but  it  is  directly  proportional  neither 
to  the  quantity  of  material  used  in  an  article,  to  the  direct 
labor  cost,  to  the  man-hours  or  to  the  machine-hours.  The 
best  way  of  distributing  it  is  probably  a  combination  of 
material  burden  and  job  burden.  An  order  for  a  single  sash 
involves  as  much  clerical  work  as  an  order  for  a  hundred 
sash  of  the  same  size,  as  much  time  for  setting  gages  and  tools 
in  the  machines,  nearly  as  much  supervision,  and  a  far  greater 
amount  of  storage  space  relatively  to  the  quantity  of  material. 

Suppose  the  amount  of  material  handled  is  two  kiln-car 
loads,  of  8000  feet  B.M.  each,  per  day,  or  a  total  of  4800  thou- 
sand feet  B.M.  per  year,  and  that  the  number  of  job  tickets  or 
orders  is  30  per  clay  on  the  average  (one  ticket  for  one  article  or 
any  number  of  articles  of  one  kind  and  size),  or  say  9000  job 
tickets  per  year,  a  charge  of  SI  per  1000  feet  B.M.  would  make 
$4800  per  year,  and  a  charge  of  20  cents  for  each  job  ticket 
would  make  $1800  per  year  for  job  burden;  the  total,  $0600,  is 
10  per  cent  more  than  the  estimated  burden  on  material,  and 
these  charges  may  therefore  be  considered  fair  and  safe.  In  a 
large  factory  a  greater  refinement  in  the  distribution  of  the  bur- 
den not  chargeable  to  machine  hours  may  be  desirable,  but  it 
should  not  be  undertaken  until  after  an  analysis  of  a  year's 
statistics  of  burden  costs  and  charges  has  been  made. 

When  the  method  of  making  burden  chaiges  has  been 
decided  upon  and  enough  time  studies  have  been  made 
to  obtain  fair  average  operating  times,  Cost  Estimate  Cards 
may  be  made  out  as  follows: 

Cost  Estimate.  36x30-inch  sash.  Style  A.  Plank, 
16feetxl2xlj  inch  =20  feet  B.M.  makes  5  sash,  average 
4  feet  B.M.  each.     1000  feet  B.M.  makes  250. 

Per  Sash 

Cost  for  Material  at  $30  per  M.     30-=- 250      12  00  cents 

Material  Burden.     $  I  per  M 0 .  40 

!  Standard  Operating  Time  per  Plank. .  .    165  min. 
Add  20%  for  rest  periods  and  delays.  .      .35 
2.00  min. 
No.  1.  Time  per  sash  0.4  min.  at  40  cents  per  hour    .       .      0  27 

Machine  Burden,  30  cents  per  hour  X0. 4  ^60 0.20 

Operation  /   (Add  Labor  and  Machine  Burden  for  each  of    the 

No.         t       other    operations) ' 

Total 

Add  Job  Burden  =  20  cents  divided  by  the  number  of  sash  of  one  size 
on  one  shop  order. 

(Example:  If  an  order  was  for  one  sash  the  addition  would  be  20  cents, 
but  if  it  was  for  40  sash  of  one  size  the  addition  would  be  20-^40  =  0.5  cent. 

When  cards  like  the  above  have  been  made  for  several 
size  of  one  style  of  sash  a  large  Price  Schedule  Card  (from 
which  charges  from  the  factory  to  the  sales  department  are 
made)  may  be  prepared  as  below: 


FACTORY  COST  OF  „. 
Width,  In. 

SASH,  STYLE  A 

20 

22 

24 

tl 

46 

48 

•20 

10 

22 

IS 

24 

IS 

■17 

41 

46 

48 

36 

The  blank  spaces  on  the  card  are  filled  in  from  time  to 
time  as  results  of  time  studies  on  the  work  going  through 
the  shop  accumulate.  Charts  of  curves  may  be  made  from 
such  figures  as  are  available,  and  they  may  be  used  for 
estimates  of  costs  of  intermediate  sizes,  time  studies  of  which 
have  not  been  made. 

The  same  time  studies  may  be  used  in  the  preparation 
of  cards  showing  the  cost  of  machine  operations  independent 
of  the  size  of  the  sash,  such  as  cost  of  sawing  strips,  of  plan- 
ing and  grooving,  of  cross-sawing,  of  assembling,  gluing,  etc. 
These  will  be  useful  in  making  estimates  on  new  orders  for 
unusual  sizes,  and  for  giving  data  to  the  management  which 
may  lead  to  reduction  of  cost  of  some  of  the  operations. 

All  of  the  cards  should  be  filed  in  such  a  manner  that 
they  may  be  readily  accessible.  A  good  way  of  filing  the 
large  factory  cost  schedule,  for  example,  is  to  put  it  under 
a  heavy  glass  plate  covering  the  billing-clerk's  desk. 

Planning  and  Scheduling  Work  for  the  Shop.  This  is 
usually  done  by  a  planning  or  production  clerk,  and  is  not  the 
work  of  a  cost  accountant,  but  as  in  a  small  shop  one  man  may 
perform  the  functions  of  bookkeeper,  cost  clerk,  production 
clerk  and  correspondent,  it  may  not  be  out  of  place  here  to 
suggest  to  him  how  he  may  shorten  his  own  work  and  at  the 
same  time  save  some  of  the  labor  of  the  shop  foreman  and 
some  of  the  time  required  for  adjusting  the  gages  and  cutting 
tools  of  the  machines  when  changing  from  one  dimension 
of  product  to  another.  By  doing  this  he  is  qualifying  himself 
to  be  some  day  the  manager  of  a  large  shop. 

A  schedule  of  dimensions  for  sawing  strips,  and  for  planing 
and  grooving  them,  for  the  several  standard  sizes  of  sash, 
may  be  made  as  below,  and  copies  of  it  tacked  to  posts 
near  the  rip  saw  and  the  strip  planer. 

Widths  of  Strips  fob  Standard  Sash 


Sash  Widths.             20  to  28 

30  to  36 

38  to  44 

46  to 

Heights 

Saw 
20  to  28           PI. 

B       T     2S 
2K   IJi  2H 

2'A   \M  2 

B     T       2S 
3       2       1% 

2%   \%  2 

B      T      2S 
3>i  2'4  2M 
3       2       2'j 

B     T      2S 
3K  2)4  2H 
3H  2X  2\i 

30  to  36 

same 

same 

38  to  44 

46  to 

B,  bottom  strip;  T,  top;   2S,  two  sides.     PI.,  plane  and  groove.     "Same" 
means  the  same  dimensions  as  above. 

A  card  for  the  length  of  strips  should  be  prepared  for  the 
cross-saw  as  follows: 

Lengths  of  Strips  for  Standard  Sash 


Form  WW.  Schedule  of  Factory  Cost  of  Sash 


Sash  Widths. 

20 

22 

24 

26 

Heights 
20 

BT       2S 

24         24 

BT       2S 
26         24 

22 

24         26 

26         26 

24 

24         28 

26         28 

26 

206 


BOOKKEEPING  AND   COST  ACCOUNTING 


Shop  Order  Cards  may  be  sent  into  the  shop,  reading 
about  as  below: 

Office  Order  No.  724.  Customer. 

Date 

Job  Orders. 

43 1 7 1  sash  20  X20  standard 

43 1 8 4  sash  30  X30  standard 

4319 4  sash  36X30  standard 

4320 2  sash  46  X36  special,  see  sketch 

These  cards  should  be  made  in  triplicate,  on  different  colors 
of  paper,  say  manila  for  the  strip  sawing,  white  for  the  planing 
and  grooving,  and  yellow  for  cross-sawing  and  subsequent 
operations.  The  yellow  card  follows  the  work  through 
the  shop  to  the  shipping  room  where  it  meets  the  shipping 
order,  or  to  the  finished  product  storing  room  where  the 
sash  is  stored.  In  either  case  it  is  returned  to  the  office, 
where  the  invoice  may  be  made  from  it,  after  the  "  factory 
costs  "  of  the  several  sizes,  taken  from  the  standard  cost 
schedules,  are  written  upon  it,  or  it  may  be  filed  in  the  inven- 
tory of  stored  goods.  The  total  of  the  values  entered  on  all 
these  cards  during  the  month  is  the  figure  for  the  monthly 
credit  to  Work  in  Process  account. 

The  Timekeeping  System  used  with  this  method  of  cost- 
ing may  be  the  simplest  possible.  It  may  be  an  ordinary  time 
book,  with  the  number  of  hours  each  man  works  in  each  day 
being  entered  upon  it,  or  a  clock  system  with  "  in "  and 
"  out "  cards  or  other  kinds  of  record.  In  either  case  a 
symbol  should  be  used  to  show  whether  the  man  is  working 
on  production,  in  which  case  his  time  is  charged  to  Work 
in  Process,  or  whether  his  work  is  "  indirect  labor,"  in  which 
case  it  is  charged  to  Burden. 

Use  of  the  Cost  System  in  other  Businesses.  The  time- 
study  method  of  costing  above  described  is  applicable  to 
many  other  kinds  of  factories  than  woodworking,  and  it  may 
be  used  in  certain  departments  of  large  factories  in  which  other 
systems,  such  as  the  job  ticket  and  machine-hour  system,  are 
used.  Each  department  of  a  factory  should  have  the  cost 
system  that  is  best  adapted  to  the  needs  of  that  department. 

COST  ACCOUNTS  FOR  A  BAKERY 
A  bakery  may  make  loaves  of  bread  of  different  sizes  and 
qualities,  rolls,  pies,  cakes,  etc.     A  job  ticket  should  be  made 
daily  for  each  style,  quality  and  size,  giving  the  number 
required  of  each.     The  following  form  may  be  used: 

Date 

Make  300  Loaves  XXX   Bread 


Material 

Amount 

Cost 

Flour 

1     bbl. 

5.50 

Yeast 

1  H  lb. 

.30 

Lard 

3      lb. 

.36 

Sugar 

2      lb. 

.  10 

Salt 

3      lb. 

.03 

Incidental 

.40 

Total  Material 

6  69 

Labor,  total  per  day 

6.30 

Proportion  for  this  order  one-third 

2.10 

Oven  and  Fuel: 

Total  this  day 

2.40 

Proportion  one-third 

.80 

General  Expense  for  day 

5.40 

Proportion  one-third 

1.80 

11.39 

Number  loaves  made 

290 

Cost  each 

.03 

The  proportion  of  the  total  daily  labor,  oven  and  expense 
cost  which  is  to  be  apportioned  to  the  several  job  tickets  is 
to  be  estimated  on  any  basis  that  may  seem  most  equitable 
such  as  on  the  number  of  pieces,  weight  of  product,  or  selling 
value. 

A  daily  cost  card  may  be  made,  summarizing  all  the  job 
tickets  of  the  day  in  the  following  form: 


Date.  .  . 

Kind 

Bread  XXX 

Bread  X 

Cake  A 

Cake 

B 

Total 

Material 

Labor 

Oven 

General  Expense 

6.69 

2   10 

.80 

1    80 

Total 

11.39 

No.  of  pieces 
Cost  each 

300 
03 

The  cards  for  a  month  may  be  added  together  and  entered 
on  a  monthly  cost  card,  on  which  the  total  material  may  be 
compared  with  the  bills  for  material  purchased,  the  total 
labor  with  the  pay  roll,  and  the  total  for  oven  and  general 
expense  taken  together  with  the  actual  payments  on  expense 
accounts.  On  this  card  also  may  be  entered  the  cost  of 
selling  and  delivering,  the  charges  and  receipts  from  sales 
and  the  monthly  profits. 

TEXTILE   COST  ACCOUNTING* 

Cost  Estimates  and  Cost  Records.  Consider  that  an 
order  for  a  fabric  has  been  received,  conditioned  on  a  certain 
price.  The  records  show  that  this  fabric  was  previously 
made  at  a  certain  cost.  It  obviously  would  not  do  to  accept 
this  order  without  taking  into  consideration  all  changes  in 
conditions  that  have  taken  place  since  the  former  production. 
Wages  may  have  increased,  automatic  looms  may  have  re- 
placed plain  looms,  the  price  of  raw  niaterial  may  have  ad- 
vanced, and  a  number  of  the  elements  of  cost  may  have 
changed,  which  would  alter  the  previous  cost.  Consequently 
an  estimate  is  made,  based  on  the  known  facts  taking  these 
changes  into  consideration  as  accurately  as  possible.  The 
order  is  accepted  because  the  estimate  indicates  that,  pro- 
vided the  conditions  considered  therein  hold  true,  a  profit 
should  result  from  the  sale.  During  the  actual  manufacture 
of  the  order,  however,  alterations  of  conditions  occur  which 
were  not  anticipated.  The  production  decreased,  the  per- 
centage of  second  quality  goods  increased ;  perhaps  a  number 
of  such  cost  factors  varied.  In  consequence  the  anticipated 
profit  becomes  doubtful,  and  it  is  evident  that  the  estimate 
cannot  be  used  as  a  guarantee  of  profit.  After  the  fabric  is 
completed,  the  cost  is  carefully  compiled  and  the  true  cost, 
regardless  of  the  existing  conditions,  determined.  This 
affords  a  proof  of  the  accuracy  or  inaccuracy  of  the  prelim- 
inary estimate,  determines  whether  or  not  the  order  has  been 
profitable  and  becomes  a  basis  for  estimating  more  accurately 
on  future  orders. 

*  Condensed  from  a  paper  by  C.  B.  Annett  and  C.  F.  Cunning- 
ham.    Trans.  A.  S.  M.  E.,  vol.  35  (1913),  p.  555. 


COSTS  IN  A  TEXTILE  MILL 


20^ 


The  general  storekeeper  should  have  charge  of  and  be 
responsible  for  all  raw  materials,  semi-finished  and  finished 
stock  wherever  located.  This  does  not  necessarily  imply 
that  all  stores  should  be  centralized  in  one  place,  but  it  does 
imply  that  one  person  should  be  held  responsible  for  its  proper 
care  and  for  correct  reporting  of  the  receipts  and  disburse- 
ments of  all  materials. 

Lot  Costs.  There  are  two  general  methods  of  collecting 
cost  data:  (a)  By  definite  lots  or  orders;  and  (6)  by  opera- 
tions. The  first  method  provides  for  the  determination  of  the 
cost,  of  definite  quantities  of  product  and  is  applicable  only 
to  cases  where  the  material  can  be  processed  in  definite  lots 
and  kept  intact  through  the  several  operations.  These 
requirements  render  this  method  impracticable  in  such  textile 
mills  as  largely  manufacture  what  are  known  as  staple 
products.  The  production  in  such  cases  is  so  continuous 
that  it  cannot  be  readily  segregated  into  lots  or  batches. 

Production  orders  should  be  issued  as  the  authority  for 
processing  all  materials  entering  directly  into  the  product. 
They  should  be  numbered  serially  and  all  expenditures  of 
labor  and  material  on  account  of  them  should  be  charged  to 
these  numbers.  It  is  not  essential  that  an  order  should  cover 
the  complete  process  from  raw  material  to  finished  product, 
but  it  is  necessary  that  it  should  cover  a  complete  stage  of 
production. 

All  disbursements  of  materials  from  stores  should  be  priced 
at  cost  and  charged  to  the  proper  order  number. 

For  collecting  labor  cost  data,  timekeepers  should  be  sup- 
plemented, so  far  as  possible,  with  mechanical  recorders 
which  can  neither  err  nor  misrepresent. 

Distribution  of  expenses  may  be  divided  into  two  parts: 
First,  the  distribution  of  the  general  expense  of  the  mill, 
together  with  power,  heat  and  light  to  the  producing  depart- 
ments; and  second,  the  apportionment  of  the  total  depart- 
mental expense  thus  obtained  over  the  product  passing 
through  the  departments. 

Power  should  be  distributed  on  the  basis  of  power  con- 
sumed, depreciation  on  the  basis  of  the  value  of  the  plant 
and  equipment  used  by  the  department.  In  a  similar  manner 
each  item  of  general  expense  should  be  taken  up,  and  the 
most  equitable  method  of  distribution  determined. 

The  total  departmental  indirect  cost  thus  obtained  may  be 
apportioned  over  the  product  by  any  one  of  several  methods. 
It  is  generally  desirable  in  textile  mills,  however,  to  use  the 
machine  hour  basis  or  its  equivalent,  as  the  machine  is  largely 
the  unit  of  production. 

The  cost  of  direct  material  and  direct  labor  can  be  deter- 
mined as  soon  as  the  order  is  completed,  but  the  exact  amount 
to  be  added  for  indirect  expense  cannot  be  ascertained  until 
after  the  close  of  the  period.  It  is,  therefore,  common  prac- 
tice in  figuring  current  costs  to  use  the  rates  based  on  the 
results  of  previous  periods.  While  this  is  the  only  prac- 
ticable method  to  pursue  when  immediate  cost  figures  are 
required,  it  nevertheless  is  liable  to  error  and  should  only 
be  used  when  it  is  not  practicable  to  wait  until  the  close  of 
the  period. 

Operation  Costs.  The  second  method,  that  of  operation 
costs,  as  the  name  implies,  provides  for  the  determination  of 


the  cost  of  individual  operations.  Given  the  total  cost  of 
each  operation  and  the  loss  by  shrinkage  of  material  from 
operation  to  operation,  the  total  cost  of  any  product,  or  the 
cost  at  any  desired  stage  of  completion  may  be  found  by 
combining  these  costs.  They  must,  however,  be  combined 
only  with  a  full  knowledge  of  the  shrinkage  and  the  exact, 
order  in  which  the  several  operations  were  performed.  This 
method  is  applicable  to  mills  in  which  the  production  is  con- 
tinuous, and,  therefore,  is  adapted  to  a  large  class  of  textile 
mills,  especially  those  manufacturing  staple  cotton  goods. 

The  foundation  of  operation  costs  rests  upon  an  accurate 
knowledge  of  the  shrinkage  from  operation  to  operation. 
There  are  in  use  several  methods  of  measuring  production, 
but  none  of  them  are  entirely  satisfactory. 

Because  of  the  fact  that  the  majority  of  the  fibres  used  in 
the  manufacture  of  textiles  are  subject  to  a  considerable 
variation  in  weight,  due  to  the  rapidity  with  which  they 
absorb  and  discharge  moisture,  if  weight  is  used  as  the  unit 
of  measure  it  is  subject  to  a  corresponding  variation.  The 
most  practicable  unit  of  measure  for  yarn,  both  finished  and 
semi-finished,  seems  to  be  the  pound.  Cloth  may  be  meas- 
ured either  by  the  pound  or  the  yard,  whichever  is  the  more 
convenient. 

The  collection  of  the  cost  data  under  this  plan  differs  from 
that  used  in  the  first  plan,  in  that  there  is  no  special  produc- 
tion order  number  against  which  the  various  expenditures 
of  labor  and  material  can  be  charged  and  it  is,  therefore,  neces- 
sary to  use  the  operation  as  the  unit  of  cost.  It  is  essential 
to  this  scheme  that  the  various  operations  be  definitely  deter- 
mined and  designated  by  a  number.  The  several  different 
kinds  of  product  should  also  be  numbered. 

All  disbursements  of  direct  material  from  stores  should  be 
priced  at  cost  and  charged  in  the  mill  ledger  to  the  first  opera- 
tion through  which  the  material  passes,  classified  to  kind  of 
raw  material.  Provision  should  be  made  for  accounting  for 
the  value  of  the  waste  made  in  each  operation.  The  direct 
material  accounts  should  be  subdivided  as  to  kind  of  raw 
material,  rather  than  kind  of  product,  as  it  is  usually  imprac- 
ticable to  obtain  a  report  of  waste  classified  as  to  kind  of 
product.  Each  operation  and  each  kind  of  material  should 
be  credited  with  the  proper  amount  for  waste.  Shrinkages 
are  constant  only  in  so  far  as  the  cause  is  either  natural  or 
due  to  mechanical  appliances,  and  shrinkages  due  to  "  human 
elements  "  are  subject  to  wide  variation.  Considering  that 
the  waste  in  woolen  mills  is  over  50  per  cent  of  the  raw 
material  and  in  cotton  mills  over  15  per  cent,  it  seems  well 
worth  while  to  give  this  problem  serious  consideration. 

All  direct  labor  should  be  analyzed  as  to  operation  and  kind 
of  product  and  charged  in  the  mill  ledger  to  the  proper 
account.  The  total  indirect  cost  for  each  operation  should 
be  determined  in  much  the  same  manner  as  explained  under 
lot  costs.  It  should  then  be  apportioned  to  the  several 
kinds  of  product  and  charged  to  the  proper  accounts  in  the 
mill  ledger.  At  the  close  of  any  period,  the  unit  cost  of  any 
operation  may  be  determined  by  dividing  the  total  expendi- 
ture on  the  operation  for  the  period  by  the  total  amount  of 
product  which  has  passed  through  the  operation  during  the 
same  period. 


208 


BOOKKEEPING   AND  COST  ACCOUNTING 


The  total  cost  of  any  given  product  cannot  be  determined 
simply  by  adding  together  the  several  operation  costs,  con- 
sidering the  shrinkage  from  operation  to  operation.  To 
obtain  the  cost  of  any  operation  in  the  completed  product,  it 
is  necessary  to  increase  the  operation  cost,  in  reciprocal 
proportion  to  the  shrinkage  from  the  end  of  that  operation 
to  the  finished  product.  For  example,  if  the  cost  of  an  opera- 
tion is  S0.015  and  the  shrinkage  of  product  is  25  per  cent,  the 

operation  cost  in  completed  product  would  be  innir/     okct-  = 

SO. 02.  It  would  be  possible  to  determine  the  total  cost  of 
product  by  this  method,  except  for  the  fact  that  the  exact 
sequence  of  operations  is  not  readily  ascertainable,  making 
it  impossible  to  determine  accurately  the  amount  of  shrink- 
age, especially  in  a  mill  making  a  variety  of  products. 

A  more  satisfactory  method  is  to  build  up  the  total  cost, 
operation  by  operation,  beginning  with  the  first  operation 
and  charging  forward  to  each  succeeding  operation  the  cumu- 
lative cost  of  all  preceding  operations. 

In  many  cases,  the  product  of  one  operation  is  made  into  a 
number  of  different  kinds  of  product  in  a  succeeding  opera- 
tion. For  example,  one  size  of  roving  may  be  spun  into 
several  sizes  of  yarn  and  it  is  necessary  in  such  cases  to  appor- 
tion the  amount  charged  forward  from  the  previous  operation 
to  the  succeeding  operation,  based  on  the  total  production  of 
each  kind  of  product  in  the  succeeding  operation.  By  this 
method  of  cost  finding,  the  inventory  of  product  in  process 
is  automatically  priced  and,  further,  it  is  possible  to 
determine  the  cost  of  the  product  shipped  during  the  period. 
The  operation  cost  method  not  only  provides  for  obtaining 
the  detail  costs  by  operations,  but  also  the  total  cost  of  all 
kinds  of  product. 

A  mill  or  inventory  ledger  should  be  opened,  designed  to 
collect  and  control  the  various  facts  regarding  the  manufac- 
turing costs  and  inventory  records.  This  should  be  done 
regardless  of  whether  costs  are  determined  by  means  of  the 
definite  lot  or  operation  plan.  The  mill  ledger  at  the  close  of 
each  period  should  be  in  balance  with  the  controlling  account 
in  the  private  ledger. 

The  various  items  of  expense  not  distributed  or  applying 
to  product  in  process,  should  be  so  segregated  that  they  can 
be  easily  checked  against  uncompleted  costs  and  the  uncom- 
pleted costs  in  turn  checked  against  the  product  in  process 
account.  By  this  means  at  the  close  of  each  period,  be  it 
one  or  four  weeks,  or  one  or  several  months,  the  accuracy  of 
the  costs  compiled  during  the  period  is  demonstrated. 

STANDARDIZATION  OF  POWER  PLANT    OPERATING 
COSTS  * 

The  cost  of  manufacture  of  power  or  any  other  commodity 
is  the  chief  criterion  upon  which  the  market  price,  range 
of  use,  legislation,  future  developments,  social  welfare, 
etc.,  are  depending.  Few  if  any  of  these  questions  can  be 
intelligently  answered  from  the  knowledge   of  actual   costs, 

*  Abstract  of  a  paper  by  Walter  N.  Polakov,  presented  at  the 
Meeting  of  the  New  York  local  section  of  The  American  Society 
of  Mechanical  Engineers,  January  11,  1910. 


owing  to  the  effect  of  an  unknown  factor — degree  of  per- 
fection of  the  actual  performance.    A  cost  report  should  tell : 

a  What  the  power  costs. 

6  What  it  should  cost. 

c  Where  the  loss  has  occurred. 

d  Why  the  loss  has  occurred. 

These  questions  answered,  elimination  of  waste  is  a  com- 
paratively simple  engineering  problem. 

Estimates  of  probable  future  expenses  are  usually  based 
either  on  past  performances  modified  by  expectations,  or 
on  data  obtained  from  actual  performance  of  another  plant 
considered  as  similar.  The  accuracy  of  such  estimates  de- 
pends at  least  on  the  following  conditions: 

a  How  reliable  were  the  cost  records  used. 

6  How  near  the  possibilities  were  realized. 

c  How  close  is  the  similarity  of  the  equipment  of  plants 
under  consideration. 

d  What  effect  the  location  has. 

c  What  effect  the  nature  of  load  has. 

/  What  effect  the  labor  market  produces. 

g  How  completely  the  future  factors  were  foreseen. 

Since  there  is,  however,  no  assurance  that  in  the  sample 
plant  the  operating  methods  are  perfect,  neither  is  it  reason- 
able to  expect  that  another  plant  is  in  every  respect  identical 
to  the  sample  plant. 

Table  1  presents  examples  of  a  typical  effort  to  make 
use  of  cost  data  comparing  monthly  cost  reports  of  seven 
central  stations.  Their  equipments  are  widely  different; 
no  two  of  them  use  the  same  grade  of  coal;  the  arrangement 
of  machinery  requires  in  some  cases  double  the  number  of 
attendants.  There  are  differences  in  characteristic  of  current, 
distribution  of  load  and  peaks  during  the  day,  etc.  Under 
such  circumstances  we  cannot  say  from  these  data  that 
one  is  operating  more  efficiently  than  another. 

Even  if  all  factors  are  fully  accounted  for,  the  fact  that 
two  plants  are  equally  economical  does  not  tell  how  far 
each  of  them  is  from  the  possible  degree  of  perfection. 

Proper  tabulation  and  distribution  of  costs  is  of  less 
importance  than  a  satisfactory  method  of  analyzing  the 
data  collected. 

CLASSIFICATION    OF    EXPENSES 

All  expenses  incurred  in  the  course  of  power  production 
fall  under  analysis  into  two  main  groups: 

a  Constant  (within  a  certain  range)  for  any  output. 

6  Variable  in  some  direct  proportion  with  the  output. 

Expenses  that  are  independent  of  volume  of  output  are 
at  the  same  time  independent  of  each  other  and  do  not 
characterize  the  efficiency  of  processes  performed  in  the 
power  plant.  Their  effect  on  unit  cost  is  represented  by  a 
parabolic  curve  decreasing  with  the  increase  of  output. 
They  are  exemplified  by  interest  on  investment,  depreci- 
ation, sinking  fund,  insurances,  management,  pay  roll  (in 
some  cases),  taxes,  etc. 

Expenses  that  vary  with  the  output  of  the  plant  charac- 
terize, other  conditions  being  constant,  the  efficiency  of 
operation,  and  their  elements  stand  together  in  dependent 


COSTS  IN  A  POWER  PLANT 


209 


Comparative  Cost  of  Operation  and  Maintenance  of  Power  Plants— June,  1915 


A 

B 

C 

D 

E 

F 

G 

Cents 

Cents 

Cents 

Cents 

( Ynt^ 

Cents 

Cents 

]  >    ll;il  -, 

per. 

Dollars, 

per 

Dollars, 

per 

Dollars, 

per 

Dollars, 

per 

Dollars, 

per 

Dollars, 

per 

Total 

kw- 

Total 

kw- 

Total 

kw- 

Total 

kw- 

Total 

kw- 

Total 

kw- 

Total 

kw- 

hr. 

hr. 

hr. 

hr. 

hr. 

hr. 

hr. 

2,233 

036 

1,639 

.056 

2.686 

.025 

4,967 

0195 

3,076 

0318 

3,283 

0855 

1,133 

.052 

u 

1,116 

.018 

679 

.024 

1,682 

.016 

3,156 

0124 

1,471 

0153 

1,472 

0383 

756 

.035 

— 

1,080 

.018 

522 

.018 

536 

.005 

982 

.0039 

1,105 

.0114 

264 

0120 

144 

.007 

- 

Superv. — Janitors  and  Watchmen 

563 

.009 

531 

018 

601 

.006 

1,230 

.0049 

460 

0048 

1,061 

0276 

149 

.007 

Total  Operating  Labor 

4,993 

.081 

3,374 

.116 

5,506 

.052 

10,336 

.0407 

6,113 

0633 

6,281 

.1634 

2,184 

101 

0 

Coal 

20,535 

.335 

7,338 

.252 

29,945 

.285 

73,803 

.2908 

35,260 

.3648 

11,820 

3075 

8,587 

.395 

< 

675 

.011 

59 

.002 

16,18 

.015 

475 

.0019 

1,353 

.0141 

789 

0205 

30 

.002 

a 

- 

84 

.002 

61 

.002 

44 

001 

226 

0009 

270 

.0028 

135 

0035 

68 

.003 

O 

- 

Miscellaneous  Material 

194 

.003 

157 

.005 

27 

.000 

2,043 

0080 

35 

.0004 

555 

.0145 

149 

.007 

S 

Miscellaneous  Charges 

20 

.000 

Cr.     1 

.000 

757 

.007 

129 

.006 

Total  Operating  Material 

21,510 

.351 

7,614 

.261 

32,394 

.308 

76,549 

.3016 

36,920 

.3821 

13,300 

.3460 

8,966 

413 

Total  Operation 

26,503 

.432 

10,989 

.377 

37,901 

.360 

86,886 

.3423 

43,034 

.4454 

19,582 

.5094 

11,150 

.514 

40 

001 

129 

.004 

190 

.002 

1,312 

.0052 

140 

.0015 

77 

0020 

2 

.000 

291 

.005 

319 

Oil 

703 

.007 

641 

0025 

751 

0078 

279 

0073 

139 

.006 

Boiler  Room  Auxiliary  Apparatus 

173 

.003 

268 

.009 

594 

.005 

520 

0020 

280 

.0029 

66 

.0017 

31 

002 

t- 

Turbines 

1,055 

017 

27 

.001 

328 

.003 

55 

.0002 

361 

.0037 

286 

0075 

1 

.000 

X 

Auxiliary  Apparatus 

142 

.002 

21 

.001 

561 

.005 

322 

0013 

176 

.0018 

334 

0087 

6 

.000 

J 

Electrical  Apparatus 

9 

.000 

1 

.000 

399 

.004 

119 

0005 

353 

.0037 

85 

0022 

1 

000 

85 

001 

54 

.002 

389 

.004 

433 

0017 

119 

.0012 

131 

0034 

136 

.006 

a 
•< 

Miscellaneous 

49 

001 

55 

.002 

132 

.001 

55 

0002 

396 

.0041 

1 

0001 

23 

.002 

— 

Total  Maintenance  Labor 

1,847 

030 

876 

030 

3,299 

.031 

3,460 

0136 

2,580 

.0267 

1,263 

.0329 

343 

.016 

Building 

212 

.004 

99 

004 

799 

.008 

3,490 

.0137 

2 

0000 

29 

0008 

15 

.001 

Z 

Boilers 

295 

.005 

66 

.003 

895 

.008 

1,389 

0055 

702 

.0072 

169 

.0044 

457 

.021 

< 

s 

Boiler  Room  Auxiliary  Apparatus 

50 

.001 

40 

.001 

836 

.008 

529 

0021 

88 

.0009 

73 

.0019 

36 

.002 

ad 

Turbines 

78 

.ooi 

.000 

739 

.007 

27 

0001 

18 

.0002 

78 

0020 

5 

.000 

2 

Auxiliary  Apparatus 

41 

.001 

8 

.000 

1,344 

.013 

68 

0002 

143 

0015 

1,300 

0338 

28 

.001 

Electrical  Apparatus 

14 

.000 

.000 

138 

.001 

766 

0031 

137 

0014 

162 

.0042 

Piping 

20 

.000 

7 

.000 

220 

.002 

574 

0023 

81 

.0008 

200 

.0052 

149 

.007 

Miscellaneous 

8 

.000 

2 

.000 

127 

.001 

82 

0003 

209 

.0022 

60 

.003 

Total  Maintenance  Material 

720 

.012 

226 

.008 

5,100 

.048 

6,927 

.0273 

1,383 

.0143 

2,013 

.0523 

752 

.035 

Total  Maintenance 

2,568 

.042 

1,102 

.038 

8,399 

.079 

10,387 

.0409 

3,963 

.0410 

3,276 

0852 

1,095 

.051 

Total  Labor 

6,841 

.III 

4,250 

.146 

8,805 

.084 

13.797 

.0543 

6,693 

.0900 

7,545 

.1963 

2,527 

117 

Total  Material 

22,230 

.363 

7,841 

.269 

37,495 

.356 

83,476 

.3289 

38,303 

.3964 

15,314 

.3983 

9,718 

.445 

Total   Labor  and  Material    Power 

Station  Proper 

29,072 

.474 

12,091 

.415 

46,300 

.440 

97,273 

.3832 

46,997 

4864 

22,859 

.5946 

12,246 

.562 

Other  Items  Charged  to  Power  Sta- 

tion Accounts 

676 

.011 

676 

.023 

294 

.003 

2,024 

.0080 

966 

.0252 

255 

.013 

(m 

Total 

29,748 

.485 

12,768 

.438 

46,595 

.443 

99,298 

.3912 

46,997 

.4864 

23,826 

.6198 

12,502 

.575 

■< 

s 

Net  Output  in  kw-hrs.  (thousands) 

6,133 

2,915 

10,509 

25,286 

9,664 

3,844 

2,171 

Total  Power  Generated  (thous.) 

6,211 

2,941 

10,625 

25,385 

9,781 

4,043 

2,171 

ai 

Lb.  Coal  per  kw-hr. 

2.68 

2.72 

2.18 

2.062 

2.682 

3.78 

3.40 

Cost  of  Coal  per  2000  lb.,  Dollars 

2.50 

1.85 

2.613 

2.803 

2.72 

1.61 

2.33 

Load  Factor — Machine,  Per  Cent 

59.6 

74.5 

64.56 

73.  17 

86.6 

49.0 

64.0 

Load  Factor — 15  Min.  Max.,  Per 

Cent 

45.3 

23  8 

36  37 

90.44 

58   1 

35.0 

112.0 

B.t.u.  per  net  kw-hr.  Output 

38,289 

33,513 

30.716 

29,561 

38,046 

43,627 

49,300 

Form  Pol.  1.     Cost  of  Operation  and  Maintenance  of  Power  Plants 


210 


BOOKKEEPING  AND   COST  ACCOUNTING 


sequence.  If  represented  graphically,  they  show  very  ir- 
regular shaped  curves  peculiar  to  each  set  of  equipment. 
Unit  cost  has  a  tendency  to  drop  with  increased  output, 
as  the  efficiency  of  boilers,  turbines,  etc.,  tends  to  improve 
with  increased  load;  yet  as  with  higher  degrees  of  overload 
the  efficiency  decreases,  the  unit  cost  rises.  With  further 
increase  of  load  when  an  additional  unit  is  started,  the  effi- 
ciency again  begins  to  improve  until  their  cumulative  effi- 
cient capacity  is  exceeded,  when  the  unit  cost  commences 
to  increase  again.  Such  waves  are  sometimes  very  pronounced 
and  generally,  throughout  the  range  of  the  plant's  capacity, 
the  number  of  waves  on  the  unit  cost  curve  is  equal  to  the 
number  of  generating  units  installed. 

The  criterion  of  economy  is  formulated  by  the  interplay 
of  three  factors,  time,  product  and  cost.  When  only  one 
factor  varies,  its  effect  on  economy  can  easily  be  foreseen. 
Thus  greater  product,  without  change  of  time  required  or 
cost,  increases  the  economy.  Increase  of  either  time  of 
production   or   cost   of    production   reduces   the   economy. 

To  determine  the  economic  limit  reached  by  continuous 
increase  or  decrease  of  influential  elements  is  by  no  means 
an  easy  problem,  but  unless  it  is  solved  we  are  in  the  dark 
not  only  as  to  ichat  economy  can  be  obtained,  but  also  what 
changes  in  conditions  and  methods  are  essential. 

STANDARD    COSTS 

It  is  relatively  unimportant  whether  the  maximum  limit 
of  economy  is  determined  empirically  by  rigorous  obser- 
vations, tests  and  analyses  of  all  influential  elements,  or 
calculated  from  the  principal  data  already  available.  It 
is  imperative  that  such  study  be  made  and  the  economy  limit 
established,  as  this  is  the  only  criterion  for  judging  the  actual 
performance.  Unless  standard  costs  are  established  there  is 
no  measure  of  existing  losses  or  exact  knowledge  how  to  elim- 
inate tliem. 

In  the  determination  of  standard  operating  cost,  such 
factors  as  inherent  efficiency  of  equipment,  its  efficiency 
under  different  loads,  prices  of  fuel  and  supplies,  necessary 
and  sufficient  number  of  attendants  and  their  compensation, 
etc.,  are  taken  into  consideration  for  a  given  plant.  Any 
deviation  observed  between  the  actual  operating  cost  and 
this  standard  cost  indicates  that  some  of  the  necessary 
conditions  were  not  lived  up  to  and,  if  standardization  has 
been  carried  out  in  sufficient  detail,  it  leads  directly  to  the 
allocation  of  the  loss  to  operating  methods.  On  the  other 
hand,  any  change  in  the  basic  data  used  in  determination 
of  the  standard  cost  being  known,  adjustment  of  the  stand- 
ard cost  can  easily  be  made  before  the  blame  is  put  at  the 
door  of  the  operators.  The  efficiency  of  the  thermo  dynamic 
process  should  be  made  a  subject  of  a  thorough  inves- 
tigation to  ascertain  first  the  maximum  efficiency  limit 
of  each  partial  process,  and  then  the  result  of  their  interplay. 
When  this  is  accomplished,  the  entire  process  will  be  re- 
studied  for  the  purpose  of  standardizing  methods  and  ad- 
justing for  such  a  balance  of  efficiencies  of  partial  processes 
as  will  secure  the  maximum  profit  or  economy  from  the 
expenditure  of  time,  energy  and  money  involved.      It  is 


sometimes  found  that  the  most  economical  thermal  effi- 
ciency is  somewhat  below  the  maximum  obtainable,  as  the 
slight  additional  gain  in  efficiency  necessary  to  reach  the 
maximum  is  not  warranted  by  the  expenditure  required 
for  its  attainment.  When  these  limiting  conditions  are  studied 
and  determined,  a  method  can  then  be  defined  for  each 
member  of  the  working  force,  prescribing  his  duties  and  the 
conditions  he  must  maintain  to  secure  the  most  profitable 
degree  of  efficiency. 

Upon  the  conclusion  of  these  studies,  the  best  efficiency 
of  each  unit  and  their  combination  being  known  for  any 
load,  the  standard  cost  for  any  output  in  a  given  time  unit 
can  be  conveniently  represented  in  graphical  form. 

The  principles  of  determining  the  standard  cost  of  main- 
tenance and  upkeep  of  the  plant  and  equipment  are  sub- 
stantially the  same;  the  method  of  study,  however,  is  some- 
what different.  It  involves  a  study  of  design  and  construction 
of  all  elements  of  equipment ;  minute  records  of  their  service 
and  cost  of  maintenance  may  lead  to  a  modification  of 
design,  use  of  cheaper  renewable  parts,  etc.  Next,  the  stand- 
ardization of  supplies,  beginning  in  the  laboratory  and 
followed  by  actual  service  tests,  helps  to  determine  not 
alone  the  purchase  price,  but  the  lowest  service  cost.  Finally, 
time  studies  embracing  schedules  for  inspection,  routes  for 
maintenance  men,  standardization  of  tools,  motions,  methods, 
etc.,  conclude  the  investigation.  The  criterion  is,  of  course, 
not  the  wages  of  the  employee,  but  freedom  from  accidents, 
breakdowns  and  the  lowest  attainable  cost  of  upkeep  per 
unit  of  the  plant's  output. 

CURVES   OF   STANDABD   COSTS 

Upon  conclusion  of  this  double  analysis  of  the  maximum 
economy  obtainable,  the  graphs  of  standard  cost  of  power 
production  may  be  drawn.  Curves  may  be  conveniently 
arranged  in  the  coordinates  of  cost  aDd  product  per  unit 
of  time. 

Figs.  1  and  2  represent  curves  of  standard  operating  costs. 
It  is  evident  that  any  number  of  curves  may  be  plotted 
following  the  above  method,  each  curve  representing  an 
itemized  standard  cost  according  to  the  adopted  classifi- 
cation. Fig.  1  is  thus  prepared  for  a  medium  size  public 
utility  central  station. 

Fig.  2  illustrates  a  few  characteristic  curves  of  standard 
cost  per  kilowatt-hour  for  various  rates  of  output  of  a  large 
central  station  feeding  the  lines  of  an  electrified  trunk  rail- 
road. 

USE    OF   STANDARD   COST   CURVES 

The  entire  cost  record  visualized  by  graphical  represen- 
tations of  the  items  of  account  is  found  very  convenient. 
An  example  of  such  a  graph  is  seen  in  Fig.  3,  wherein  the 
actual  unit  cost  and  the  standard  unit  cost  are  plotted  to 
the  same  scale,  the  deviation  of  one  from  the  other  suggesting 
at  a  glance  the  degree  of  perfection  of  the  performance. 
The  total  expense  curve  and  the  cumulative  expense  curve 
may  be  shown  on  the  same  graph  to  a  suitable  scale;  the 
latter  curve  is  found  serviceable  for  comparing  these  items 


COSTS  IN  A  POWER  PLANT 


211 


0.0070 


a  o. 

of  0. 


O.OOOf. 
0 


a 

4  \% 

- 

\V- 

z 

lM\JS 

B 

AW 

:: 

v]> 

*s« 

w 

^ 

3  n\ 

^ 
\ 

- 

t  — 

^ 

Total  Cost  of  One 

Kw.- 

ir 

Except 

*-.s 

t. 

Lnb 

>r  and  Supervision 

1 

-- 

V 

*^1! 

'V 

»«u 

; 

iJuuricante 

luil  Supplies 

■o« 

»7 

^^ 

|     |_  WrKwi-hr. 

'/i 

- 

s 


s 


Kilowatt-hours  i«r  Day 

Fig.  1. — Curves  Showing  Variation  in  Standard  Costs  of 
Operation  in  a  Public  Utility  Central  Station. 


1 

\ 

\ 

-0.8- 

\ 

S 

ja 

^Afi 

O 

\ 

_0.o 

1 

\ 

\ 

\ 

~^i 

I'i 

..1 

Sg 

1 

ji 

W 

O 

.,1 

A 

3. 

s 

*-h 

hi, 

in| 

O 

1 

' 

\ 

\ 

8.  ( 

(r 

v 

~>. 

I, 

I 

r1 

-, 

-B- 

lili 

r  I 

loo 

i'i-L.i 

Plant 

1    Exp 

me 

'S 

0  _ 

— 

48       96      141      192     240     288     336     3(41     432     480     528     576     624     682 


•^-Production-Thousands  of  Kw-hr.  per  Day 

Fig.  2. — Curves  Showing  Variation  op  Standard  Costs  of 
Power  Production  at  an  Electrified  Railway  Central 
Plant. 


.0.06 

1 

t  0.05 

^0.01 

|o.03 

s 

J^ 

<* 

E 
30,000  a 

"o 

25,000  ^ 

t£ 

* 

ft 

, 

s!s 

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Fig.  3. — Visualized  Records  of  the  Entire  Cost  of  Power 
Plant  Operation,  in  which  the  Actual  Unit  Cost  and 
the  Standard  Unit  Cost  are  Plotted  to  the  Same 
Scale. 


with  the  appropriation  made.  A  cost  system  kept  on  a 
card  file  in  this  manner  will  represent  clearly  in  any  desired 
detail  for  any  length  of  time  and  at  any  period: 

a  How  much  was  spent. 
6  How  much  each  unit  of  output  cost, 
c  How  much  it  should  have  cost. 

d  What  the  fluctuations  of  expenses  and  unit  cost  are. 
c  What  the  fluctuations  of  efficiency  are. 
/  How  close  the  actual  amount  spent  in  any  time  is 
to  the  appropriation. 

If  the  exact  total  of  expenditure  is  wanted  it  can  he  had 
at  any  time  from  the  book  records,  whereas  the  use  of 
books  and  figures  exclusively  lacks  the  comprehensiveness 
and  visual  instructive  value  of  graphs. 

By  comparing  standard  costs  of  one  plant  with  those  of 
another,  one  gains  the  knowledge  of  how  much  cheaper 
the  power  can  be  produced  in  one  plant  than  in  another, 
due  to  its  various  physical  advantages.  Again,  by  com- 
paring how  near  the  actual  cost  of  one  plant  is  to  its  stand- 
ard cost  with  the  difference  between  actual  and  standard 
cost  of  another  plant,  one  has  at  once  a  measure  of  quality 
of  methods  and  management.  Without  such  accurately 
predetermined  standard  costs  that  are  individual  for  each 
plant  and  condition  of  load,  no  correct  comparison  is  possible, 
and  conclusions  from  a  mere  study  of  accountants'  figures 
are  apt  to  be  grossly  in  error. 

standardization  of  protective  charges 

In  the  above  discussion  of  standard  cost  we  left  out  of 
consideration  a  very  important  feature — namely,  fixed 
charges  borne  by  the  plant.  It  is  a  common  policy  to  install 
in  power  plants  considerable  spare  equipment,  partly  as  a 
protection  against  possible  breakdown  and  partly  to  take 
care  of  high  peak  ioads.  In  both  cases,  it  would  not  be 
logical  to  adulterate  production  costs  by  the  addition  of 
all  overhead  charges  incident  to  this  idle  equipment. 

Inasmuch  as  the  spare  equipment  has  a  function  iden- 
tical to  a  stand-by  plant  at  some  distant  point  of  transmission 
line  or  a  breakdown  emergency  connection  with  a  power 
company  nearby,  it  seems  entirely  proper  to  segregate  this 
portion  of  charges  and  treat  them  in  the  same  manner  as 
the  bills  of  an  emergency  contract,  i.e.,  to  carry  the  cost 
on  a  separate  business  account. 

If,  in  the  case  of  a  plant  built  and  equipped  to  produce 
twice  the  output  it  normally  carries,  fixed  charges  are  dumped 
together  with  operation  costs,  it  reflects  unfairly  on  the 
ability  of  the  superintendent  and  his  operating  force;  whereas 
if  they  were  properly  charged  to  a  separate  account,  the 
excessive  charge  against  the  stand-by  equipment,  both  for 
fixed  charges  and  running  expense,  would  produce  a  stim- 
ulus for  the  business  departments  to  secure  additional 
load. 

COMPARISON  OF  COSTS  AND  EFFICIENCIES 

The  essentials  of  knowledge  gained  through  a  compa- 
rison of  actual  cost  in  conjunction  with  the  standard  are: 


212 


BOOKKEEPING  AND  COST  ACCOUNTING 


a  Relative  supremacy  of  plants  proper. 

b  Relative  advantages  of  managerial  methods. 

c  Relative  extent  of  preventable  losses. 

d  Relative  advantages  of  prices  of  materials,  etc. 

These  cannot  be  found  unless  there  is  a  comparable  basis 
or  scale  for  comparison,  which  is  offered  by  standard  costs 
determined  for  each  plant  individually,  as  at  least  ten  main 
variables  must  be  accounted  for,  as  follows: 

a  Nature  of  load. 

b  Character  of  service. 

c  Conditions  imposed  by  location. 

d  Inherent  efficiency  of  equipment. 

e  Arrangement  of  equipment,  floor  plan,  etc. 

/  Cost-efficiency  of  fuel  and  supplies. 

g  Legal  requirements. 

h  Methods  of  operation. 

i  Labor  conditions. 

j  Methods  of  compensation  for  service. 

Each  of  these  variables  being  in  its  turn  a  product  of  a 


plurality  of  factors,  it  is  manifestly  impossible  to  state, 
without  the  aid  of  carefully  worked  out  standard  costs, 
that  the  economy  of  one  plant  or  another  is  satisfactory, 
or  where  and  how  it  can  be  bettered. 

Inasmuch  as  standard  cost  cannot  be  determined  with- 
out first  finding  out  how  the  maximum  economy  can  be 
secured,  the  process  of  standardization  of  costs  is  also  a 
process  of  devising  the  best  way  for  operation  and  manage- 
ment. Once  both  methods  and  results  are  positively  estab- 
lished, costs  are  but  the  form  of  expression  of  the  final  result. 
It  is  true  that  the  standard  cost  is  influenced  by  the  price 
of  commodities  used  in  the  course  of  generation  of  power, 
as  well  as  by  some  conditions  beyond  the  control  of  the 
management  and  operating  engineers,  but  the  adjustment 
of  the  standard  costs  to  every  change  of  these  factors  can 
be  made  as  simple  as  the  use  of  a  slide  rule.  Furthermore, 
a  separate  account  should  be  kept  for  such  charges  as  are 
the  part  of  business  policy,  so  that  a  division  of  responsi- 
bility between  those  managing  the  production  and  those 
directing  the  business  can  be  drawn. 


CHAPTER  XX 


COSTS  IN  A  PRINTING  SHOP 


The  manager  of  a  printing  shop  must  know  what  prices 
to  charge  for  its  product;  first,  the  prices  must  not  be  so  high 
as  to  drive  away  customers;  second,  they  must  not  be  too 
low,  or  there  will  be  no  profit  made.  In  a  proper  system  of 
cost-keeping  the  cost  of  the  product  delivered  into  the  ship- 
ping room  must  be  kept  entirely  distinct  from  the  cost  of 
securing  orders,  the  cost  of  advertising,  the  losses  from  bad 
debts  and  other  expenses  or  losses  of  the  commercial  de- 
partment. 

Selling  Price  =  Factory  Cost + Selling  Cost + Profit. 

Factory  Cost  =  Cost  of  Direct  Material+Cost  of  Direct 
Labor + Burden. 

We  shall  consider  here  only  the  factory  costs. 

The  cost  of  material  is  the  purchase  cost  of  paper,  ink, 
binder's  materials  and  other  supplies,  plus  such  addition  as 
should  be  made  for  freight,  storage,  insurance,  interest  on 
investment  in  materials,  store-keeper's  services,  and  any 
other  expense  relating  directly  to  material  charged  by  the 
storeroom  to  the  shop  on  job  tickets  or  stores  issue  tickets. 
Some  of  these  additions  might  be  considered  as  general 
factory  burden,  but  it  seems  better  to  treat  them  as  burden 
on  material. 

The  labor  cost  of  the  several  jobs  should  be  entered  on 
.job  tickets  if  they  are  short  jobs,  or  on  cost  books  (en- 
tries made  weekly)  if  they  are  long  jobs.  For  convenience 
weekly  job  tickets  may  be  made  for  these  jobs,  and  these 
tickets  may  be  filed  according  to  job  numbers,  instead  of 
being  entered  in  a  book,  together  with  the  stores  issue 
tickets  for  the  same  job  numbers. 

The  labor  in  a  printing  establishment  may  be  subdivided 
into  several  classes,  such  as  Hand  Composition,  Machine 
Composition,  Cylinder  Press,  Job  Press,  Proofreading, 
Binding  (which  itself  may  be  subdivided  into  different 
operations)  Packing  and  Shipping,  and  Indirect  Labor  of 
various  kinds.  The  labor  done  on  any  job  may  also  be  divided 
into  chargeable  hours  (sometimes  called  "  sold  hours ") 
and  non-chargeable  hours,  the  former  being  the  time  actually 
employed  in  typesetting,  proofreading,  correcting  and 
press-work,  which  may  be  charged  to  the  customer,  if  the 
charge  to  him  is  made  on  the  basis  of  the  time  spent  on  the 
job,  and  the  latter  the  time  spent  on  repetition  of  the  work 
that  has  been  imperfectly  done,  the  time  waiting  between 
orders,  or  time  spent  on  work  which  cannot  be  charged  to 
the  customer,  such  as  that  taken  in  distribution  of  type, 
cleaning  of  presses,  etc.  This  non-chargeable  time  is  treated 
as  part  of  the  department  or  shop  burden. 

The  total  shop  burden  may  be  figured  weekly  or  monthly, 


as  most  convenient.  It  includes  unproductive  shop  labor, 
spoiled  work,  and  the  weekly  or  monthly  proportion  of 
rent,  heat,  light,  power,  insurance,  taxes,  repairs,  depre- 
ciation, salaries  and  supplies  not  charged  directly  to  jobs, 
which  belong  to  the  shop  and  not  to  the  office  or  selling 
department.  This  burden  may  be  subdivided  among  the 
several  departments  of  the  shop,  such  as  Hand  Compo- 
sition, Machine  Composition,  Cylinder  Press  Work,  Job 
Press  Work,  Bindery  Work,  General  Shop  Expense,  the 
latter  being  apportioned  to  the  several  departments  as  far 
as  practicable. 

A  method  of  apportioning  the  general  expense  to  the 
departments  is  described  as  follows  by  one  writer: 

Under  direct  printery  expense  we  may  charge  those  elements 
that  can  neither  be  charged  directly  to  particular  jobs  nor  pro- 
rated by  departments.  These  elements  represent  the  general 
operating  and  maintenance  expenses  that  are  incurred  for  the 
benefit  of  the  entire  plant  as  a  plant.  They  must  be  pro-rated 
over  all  the  jobs  passing  through  the  plant.  Such  items  as  the 
salary  of  the  shop  superintendent  may  be  advantageously  pro- 
rated according  to  the  following  rule.  Pro-rate  the  salary  to 
the  different  departments  in  the  proportion  that  the  expenses  of 
each  department  bear  to  the  total  direct  printery  expense.  This 
rule  is  based  on  the  assumption  that  the  relative  amounts  of 
expense  charged  to  the  different  departments  are  indicative 
of  the  cost  importance  of  that  department  in  proportion  to  the 
cost  of  the  whole  shop.  For  example,  suppose  that  the  salary 
of  the  superintendent  is  $200  per  month,  the  total  expense 
charged  to  departments  during  the  month  is  S1840,  and  the 
expense  charged  to  the  machine  composition  department  during 
the  month  is  $184.  Then  $20  may  be  charged  to  the  machine 
composition  department  as  its  fair  share  of  the  salary  of  the 
general  superintendent.  It  should  be  observed  that  this  rule 
like  many  other  working  cost  rules,  is  based  on  assumption 
rather  than  fact.  To  illustrate :  The  foreman  of  the  bindery  may 
be  efficient  and  the  foreman  of  the  machine  composition  depart- 
ment may  be  inefficient  so  that  the  superintendent  spends  a 
greater  relative  share  of  his  time  with  the  machine  composition 
department  than  with  the  bindery.  It  is  but  fair  to  say  that 
such  examples  are  exceptions  and  that  while  they  should  be  safe- 
guarded against,  it  is  impracticable  to  devise  any  system  of  pro- 
rating that  is  so  comprehensive  as  not  to  work  unfairly  under 
exceptional  cases. 

It  is  probable  that  instead  of  the  "exceptions  proving  the 
rule,"  this  rule  is  one  of  those  that  are  "more  honored  in 
the  breach  than  in  the  observance."  There  seems  to  be 
no  logical  relation  between  the  subdivision  of  the  super- 
intendent's time,  mental  energy,  and  initiative  among  the 
several  departments  and  the  relative  expenses  of  these 
departments.  For  example,  the  hand  composition  room 
may  have  very  little  expense  charged  against  it,  the  main- 
tenance charges  being  small,  but  the  superintendent  gives 


213 


214 


BOOKKEEPING  AND  COST  ACCOUNTING 


most  of  his  time  and  thought  to  it,  on  account  of  the  mul- 
tiplicity and  variety  of  orders  passing  through  it,  while  the 
linotype  and  monotype  machine  room  has  heavy  charges 
for  repairs,  interest  on  investment,  depreciation,  fuel,  oil 
and  power,  but  the  superintendent  has  little  to  do  with  this 
room  because  the  work  done  in  it  is  of  a  uniform  character 
and  the  jobs  are  few  in  number  and  long  in  time.  The  only 
fair  rule  is  for  the  superintendent  to  make  an  analysis  of 
his  own  activities  and  charge  the  several  departments  with 
■such  fractions  of  his  salary  as  he  thinks  proper,  consulting 
the  owner  or  general  manager  as  to  the  fairness  of  the 
apportionment.  It  may  be  found  that  a  large  part  of 
his  salary  should  be  charged  to  the  several  departments 
in  proportion  to  the  number  of  orders  passing  through 
them,  and  that  the  remainder  had  better  be  apportioned 
on  the  basis  of  man-hours  or  machine  hours. 

The  distribution  of  the  total  monthly  burden,  depart- 
mental and  general,  among  the  several  jobs,  may  be  done 
on  any  one  of  the  bases  that  are  in  common  use,  viz.,  as  a 
percentage  on  direct  labor,  as  a  percentage  on  direct  labor 
and  material,  on  the  man-hour  rate,  on  the  machine-hour, 
or  work-place,  rate,  or  on  the  last  named  combined  with  a 
fixed  charge  per  job  to  cover  that  portion  of  the  burden 
which  has  no  relation  to  the  cost  of  a  machine  hour,  such 
as  superintendence  and  clerical  work. 

In  determining  the  burden  to  be  charged  to  any  job  the 
management  should  endeavor  to  reach  the  most  just  figure, 
based  upon  normal  business  conditions,  the  figure  that 
should  be  used  in  establishing  minimum  prices  for  future 
orders  or  inventory  values  of  finished  goods  in  the  ware- 
house.    In  case  of  depressed   conditions,  such  as  idleness 


due  to  strikes  or  other  causes,  the  whole  of  the  monthly 
burden  should  not  be  charged  to  the  jobs,  but  some  of  it 
should  be  charged  to  unearned  burden  or  cost  of  idleness, 
and  finally  to  Profit  and  Loss.  If  the  percentage-on-labor 
method  of  distributing  burden  is  used,  on  account  of  its 
being  the  easiest  method  for  the  bookkeeper,  it  should  be 
recognized  as  being  liable  to  great  inaccuracy  and  likely  to 
lead  to  wrong  conclusions. 

The  amount  of  hourly  burden  that  should  be  charged  on 
the  job  tickets  to  the  several  jobs,  on  the  machine-hour 
basis,  should  be  the  normal  hourly  burden  of  an  average 
month,  for  the  particular  machine,  work-place  or  production- 
center,  and  not  the  burden  that  would  be  found  by  a  "sup- 
plementary rate"  method,  absorbing  the  whole  burden  of 
a  particular  month  in  the  cost  of  the  work  produced  in  that 
month.  The  viciousness  of  this  method  has  alreadv  been 
discussed  on  pages  79  to  81.  The  difference  between  the  sum 
of  the  burdens  charged  to  all  the  jots  in  a  month,  which 
is  found  by  adding  on  an  adding  machine  all  the  burdens 
on  all  the  job  tickets,  and  the  total  actual  burden  for  the 
month,  or  the  debits  to  burden  account  on  the  shop  ledger, 
is  unearned  burden,  if  the  debits  to  the  account  exceed  the 
credits,  or  overearned  burden  if  the  credits  are  in  excess. 
At  the  end  of  the  year  the  excess  of  the  account  on  one 
side  or  the  other  is  closed  into  Profit  and  Loss. 

Plimpton  Press,  Norwood,  Mass.  The  principal  business 
of  this  concern  is  the  manufacture  of  books  for  different 
publishers.  Statistical  records  of  the  work  done  on  each 
order  from  each  publisher  are  kept  on  cards  8X5  in.  for 
each  of  the  three  departments,  Composition,  Press  Room  and 
Binding.     The  headings  of  these  cards  are  shown  below: 


Composition 


Publisher 
Title 


Started 


Order  No. 

Charged 


Period  Ending 

Author's  Hours 

Direct  Charges  to  Product 

Total 



— - 

Date 

Charged  by 

Eng.-Elec. 

Designing 

Sundries 

Under    the   headings  there  are  ten  ruled  lines  with  side-heads  at  the  left  as  follows:    Wages  1st  week,  2nd  week, 
3d  week,  4th  week,  Total,  Burden,   Eng.-Elec,  Designing,   Sundries,  Mfg.  Cost. 
The  reverse  of  this  card  is  the  same  as  the  front. 


Press  Room 


Publisher 
Description 


Book  Symbol 
Order  No. 
Completed 


Period  Ending 

Period  Ending 

Totals 

Text 

1st  Week 

2nd  Week 

3rd  Week 

4th  Week 

Total 

1st  Week 

2nd  WTeek 

3rd  Week 

4th  Week 

Total 

COSTS   IN   A  PRINTING  SHOP 


215 


Twenty-four  lines  (6  per  inch)  are  ruled  below  the  heading.    The  side  heads,  printed  in  the  first  column  under  the  word 
text,  are  as  below: 


M.  R.  1st  Form 
M.  R.  Add  Forms 
Run 

Total 


Illustrations 
M.  R.  1st  Form 
M.  R.  Add  Forms 
Run 
Total 


Miscellaneous 
M.  R.  1st  Form 
M.  R.  Add  Forms 
Run 
Total 


Time  chargeable  to  Publisher 

Total  Press  Hours 

Wages 

Paper 

Sundries 


Operating  Expense 
Shop  Expense 
Total  Manufacturing  Cost 
Adm.  and  Selling  Expense 
Total  Cost 


The  column  rulings  are  single,   for  hours,   for  the  first  sixteen  lines,  and  double,  for  dollars  and  cents,  for  the  last 
eight  lines. 

The  reverse  of  this  card  has  a  printed  heading  as  follows: 


Direct 

Charges  to  Product 

Expense  Data 

Date 

Description 

Paper 

Sundries 

Period  Ending 

Publisher 
Title 


Bindery 

Symbol 


Order  No. 
Quantity 


Started 

Quantity 

Price 

Sale 

Mfg.  Cost 

Remarks 

Completed 

Period  Endinq 

Direct  Charges  to  Product 

Total 

Date 

Description 

Stores 

Worked 

Direct 

Sundries 

Wages  1st  Week 

Wages  2nd  Week 

Under  the  heading  are  26  ruled  lines,  and  in  the  column 
under  "  Period  Ending"  are  nine  side-headings  for  the  two 
money  columns,  viz.:  HoursXcost  No.,  1st  week,  2nd 
week,  3rd  week,  4th  week,  Total  Shop  Exp.  Rate,  Operat- 
ing Exp.  Rate,  Adm.  and  Selling  Exp.  Rate,*  Remarks, 
and  in  the  same  column  on  the  last  three  lines  are  printed 
Disposition,  Selling  Price,  Presswork,  Paper. 

The  other  side-heads  are:  3rd  week,  4th  week,  Total 
Wages,  Burden,  Stores,  Worked  Mat'l,  Direct  Mat'l., 
Sundries  Mfg.  Cost. 

Workman's  Job  and  Day  Tickets 

When  a  job  is  given  out  a  "First-Time  Card  and  Bonus 
Record"  (4|X4|  in.),  Form  PI,  page  192,  goes  with  it,  a  dupli- 
cate (carbon  copy)  being  kept  in  the  planning  room.  The 
card  is  returned  when  the  job  is  finished  during  the  day  when 

♦The  use  of  the  terms  "  HoursXCost  No."  "  Shop  Expense  Rate," 
etc.,  indicate  that  the  cost  system  used  here  is  the  same  as  that  of 
the  Philadelphia  machine  shop,  which  is  described  and  criticised  in 
a  preceding  chapter.  In  fact,  many  professional  accountants  have 
studied  and  adopted  the  erroneous  methods  of  this  system  and 
have  introduced  them  in  numerous  establishments. 


it  is  given  out  and  a  card  for  another  job  is  issued,  but  if  it  is 
not  finished  the  card  is  returned  at  the  end  of  the  day  and  a 
different  card,  Form  P2,  page  193,  is  issued  for  the  next  day, 
and  so  on  for  each  succeeding  day  until  the  job  is  finished. 
These  supplementary  cards  are  filed  with  the  first  card  as 
they  are  returned  and  the  time  recorded  on  them  with  the 
number  of  pieces  finished  each  day  are  transferred  to  the 
"First-Time  Card,"  on  which  the  bonus  time  and  wages 
and  the  total  wages  are  computed  for  insertion  in  the  pay 
roll  and  in  the  cost  records. 

For  day  work  the  supplementary  card  is  printed  in  red 
ink  and  the  words  "Day  Work"  are  used  at  the  bottom 
instead  of  Bonus  Work.      Bonus   Record  also  is  omitted. 

A  "Time  and  Earnings"  card  (4|X4|  in.),  (see  Form  P5, 
page  193)  is  given  to  each  workman  for  each  day's  work. 

Stores  Issue  and  Stores  Credit  Cards.  A  Stores  Issue  Card 
(4|  <4|  in.),  Form  PP3  is  filled  out  for  every  lot  of  stores 
requisitioned  for  use  in  the  shop.  From  this  card  entries 
are  made  on  the  tag  attached  to  the  bin  in  which  the  par- 
ticular stores  are  taken,  on  the  balance  of  stores  or  perpetual 
inventory  book,  in  the  monthly  record  of  stores  issued  in 
the  cost  record  of  the  particular  order.    When  stores  are  re- 


216 


BOOKKEEPING  AND  COST  ACCOUNTING 


Quantity  Issued      |    "''"gg^"^  °°    |        Written  by 


D»7 I    Yeftr 
19 


STORES  ISSUE 


Appor- 
tioned 


Total  Value 


Stores  Symbol 


Quantity 
Required 


Issue 

Signed  by 


Material 
Issued  by 


Symbol 
Charge  to 


Form  PP3.     Stores  Issue 


Quantity  Received        Bala"" f%Z£°a  Written  by  Received 


19 


STORES  CREDIT 


Remarks 


Total  Value 


Stores  Symbol 


Move  from 

(Location.! 


Placed 
in  Loc. 


Credit 

Signed  by 


Material 
Received  by 


Symbol 
Credit 


Form  PP4.     Stores  Credit 


SEBTT 

Quantity  Issued 

Balance  shown  on 
Stores  Tajs 

Written  by 

Issued 

Month 

Dnj      1      Vemr 

19 

WORKED  MATERIAL  ISSUE 

Description 

Appor- 
tioned 

l.M.r.M 

Unit  Value 

Total  Value 

T»S 

W.M. 

Account 

Balance 
Account 

c....t 
Aoot. 

Worked  Material  Symbol 

Quantity 

Unit 

Move  from                                                               -j-0 

(  Location  i 

Issue                                                                           Material 
Signed  by                                                                Issued  by 

Title 

Symbol 
Char  ice  to 

Form  PP5.    Worked  Material  Issue 


Quantity  Received 


Balance  shown  on 
Stores  Tag 


Written  by 


Month  Dij  Yew 

19 


WORKED  MATERIAL  CREDIT 


Remarks 


Total  Value 


Worked  Material  Symbol 


Placed 
in  Loc. 


Credit 
Signed  by 


Material 
Received  by 


Form  PP6.    Worked  Material  Credit 

turned  from  the  shop  a  Stores  Credit  Card,  Form  PP4  is 
filled  out,  and  the  proper  entries  made  from  it. 

Worked  Material  Issued  and  Worked  Material  Credit 
cards,  similar  to  the  stores  cards  are  used  for  all  worked 
materials  that  are  stored  for  future  use.     (Forms  PP5  and  6.) 

A  STANDARD  COST  SYSTEM  FOR  PRINTERS 

The  United  Typotheta?  and  Franklin  Clubs  of  America, 
608  South  Dearborn  St.,  Chicago,  published  (1916)  a  pam- 
phlet (24  pages,  9X12  in.,  price  25  cents)  containing  the 
Standard  Cost  Finding  System  devised  by  the  American 
Printers'  Cost  Commission.  The  system  has  been  in  use 
since  1910,  and  has  met  general  acceptance  in  the  printer's 
trade.  What  follows  is  condensed  from  the  descriptive 
portion  of  the  pamphlet. 

The  Standard  Cost-finding  System  is  the  result  of  cooperative 
effort  on  the  part  of  the  printers  in  the  United  States  and  Canada, 
and  is  a  concrete  example  of  what  can  be  accomplished  through 
organization. 

It  is  a  method  of  cost-finding  made  standard  by  adoption  at 
the  five  International  Cost  Congresses  held  in  the  various  cities 
of  this  country,  of  a  set  of  fundamental  principles  upon  which  the 
system  is  based.  The  System  is  primarily  for  the  use  of  printers, 
and  through  its  installation  and  operation  they  are  enabled  not 
only  to  ascertain  the  exact  cost  of  an  hour's  work  in  their  various 
departments,  but  also  the  exact  cost  of  any  piece  of  work  pro- 
duced. 

The  System  was  endorsed  by  the  United  Typotheta;  of 
America  in  1910,  and  the  Federal  Trade  Commission,  through  its 
Hoard  of  expert  cost  accountants,  approved  it  in  1916  as  "  com- 
prehensive in  its  scope,  in  accord  with  the  best  methods,  and  well 
designed  along  sound,  simple  and  practical  lines  for  the  deter- 
mination of  the  cost  of  printing." 

Some  of  the  recommendations  of  the  American  Printers'  Cost 
Commission: 

1.  The  standard  unit  of  production  in  the  several  departments 
shall  be  the  PRODUCTIVE  HOUR. 

2.  The  standard  hour  cost  shall  be  the  GROSS  COST;  namely, 
labor,  plus  all  items  of  expense — direct  departmental  and  general 
overhead. 

3.  When  selling  expense,  stock  handling,  storage,  receiving 
and  shipping  are  kept  as  separate  departments,  these  items  are 


COSTS  IN   A  PRINTING   SHOP 


217 


not  included  in  the  general  overhead,  in  arriving  at  the  productive 
hour  cost  of  the  various  departments. 

The  standard  method  of  caring  for  the  overhead  expense  shall 
be  to  charge  direct  to  each  department  all  necessary  items  and 
to  distribute  office  or  general  overhead  expense  on  the  basis  of 
total  department  costs,  including  pay  roll. 

5.  For  the  purpose  of  closer  study  of  costs,  as  many  depart- 
ments as  practicable  should  be  formed. 

6.  Selling  expense  should,  where  possible,  be  kept  as  a  separate 
account  and  be  absorbed  by  cost  of  completed  work  upon  a  per- 
centage basis. 

7.  Stock  handling,  storage,  receiving  and  shipping  should, 
where  possible,  be  kept  as  a  separate  department  or  departments, 
the  expense  to  be  applied  upon  a  percentage  basis  against  the 
cost  of  paper  stock. 

To  cover  cost  of  handling  stock  (when  stock  handling  is  not 
made  a  separate  department)  we  suggest  a  minimum  of  10  per 
cent  be  added  to  the  delivered  price  at  the  plant,  profit  to  be 
added  to  this  amount. 

8.  When  segregation  of  selling  expense,  stock  handling,  storage, 
receiving  and  shipping  is  found  to  be  impracticable,  these  items 
shall  be  included  in  the  general  overhead  and  distributed  over 
the  departments  upon  the  basis  of  total  department  costs. 

16.  That  in  the  operation  of  a  printing  plant  to  its  average 
capacity,  a  minimum  profit  should  be  25  per  cent  added  to  cost 
of  production. 

19.  That  where  type  and  material  are  kept  standing  for  the 
convenience  of  the  customer,  a  proper  charge  should  be  made. 

20.  That  in  presswork  ink  should  be  charged  as  a  special  item, 
and  not  included  in  the  cost  per  hour  of  presswork. 

21.  As  a  requisite  for  determining  costs,  we  endorse  and  deem 
necessary  the  use  of  an  efficient  loose-leaf  inventory. 

22.  Experience  has  demonstrated  that  inventories  for  insur- 
ance adjustments  by  appraisal  companies  have  proven  most 
satisfactory. 

Synopsis  op  Forms 

The  Job  Ticket.  For  purely  physical  reasons  the  use  of  an 
envelope  form  of  Job  Ticket  is  advocated.  By  the  use  of  an 
envelope,  the  loss  or  misplacement  of  copy  is  minimized;  into 
the  envelope  is  put  all  copy,  proof  sheets  and  any  written  instruc- 
tions concerning  the  job,  also  a  copy  of  the  complete  job,  insuring 
a  complete  history  of  the  job,  valuable  for  future  reference  and 
free  from  those  ravages  of  time  and  dust  to  which  records  other- 
wise handled  are  usually  subjected. 

On  the  face  of  the  envelope  is  space  for  instructions  to  each 
department  of  the  plant. 

It  is  recommended  that  the  salesman  or  party  receiving  the 
order  from  the  customer  shall  fill  out  the  Job  Ticket. 

The  Job  Ticket  accompanies  the  job  through  the  various 
processes,  and  after  the  job  is  completed  it  becomes  a  part  of  the 
archives  of  the  business  for  possible  future  reference. 

Individual  Job  Record.  This  form  is  kept  in  a  loose-leaf 
binder,  the  successive  leaves  being  consecutively  numbered. 

The  binder  containing  the  sheets  of  this  form  will  lie  the  most 
referred  to  of  any  of  the  system.  This  form  contains  the  gist 
of  that  which  the  cost  system  aids  to  disclose,  to  wit:  Cost  on 
individual  jobs.  This  form  will  show  the  time  taken  on  each 
operation  of  the  job,  together  with  its  labor  cost,  as  well  as  the 
material  used  both  by  quantity  and  money  value,  also  the  sum- 
ming up  of  the  costs  of  labor  and  material  to  show  the  cost  of  the 
job  and  the  selling  price  thereof. 

If  the  system  is  properly  kept  and  all  charges  properly  made, 
then  the  sum  of  all  the  profits  shown  by  these  sheets  should  be 
the  net  profit  for  the  period  in  which  it  is  taken. 

When  the  job  is  completed,  the  cost  computed  and  the  job 
charged  to  the  customer,  then  the  sheet  should  be  taken  out  of 
the  binder  and  filed  into  a  transfer,  or  enclosed  in  the  Job  Ticket 
Envelope.  There  are  then  left  only  the  live  or  uncharged  jobs 
which  are  still  in  process,  making  practically  a  going  inventory  of 
material  and  work  in  process. 


Daily  Time  Tickets.  Each  employee  is  required  to  render 
a  daily  statement  of  the  disposition  of  the  total  hours  employed. 
It  is  in  effect  the  itemized  bill  of  the  employee  for  his  day's  work. 
From  this  record  is  made  up  his  pay  roll  record. 

The  operations  listed  on  the  back  of  the  Time  Tickets  are 
divided,  showing  which  are  chargeable  and  which  are  non-charge- 
able, making  it  easy  to  divide  the  time  on  the  ticket  under  the 
proper  heading  and,  in  turn,  to  carry  it  to  the  pay  roll  blank, 
divided  under  the  headings,  "Chargeable"  and  "Non-charge- 
able.'1 The  chargeable  time  is  also  entered  against  the  Jul., 
under  the  proper  department  heading  on  the  Individual  Job 
Record. 

Bindery.  The  operations  listed  on  the  back  of  the  time 
ticket  cover  all  work  that  can  be  done  in  that  department,  and 
therefore  it  will  not  be  necessary  to  resort  to  improvised  terms  to 
designate  the  work  done.  The  "kind  of  work"  done  is  entered 
by  number.  The  ticket  is  so  arranged  as  to  lie  suitable  for  either 
time  work  or  piece  work. 

In  the  Binderv  there  are  four  classes  of  chargeable  work,  A,  B, 
C,  and  D. 

Class  A  covers  the  machine  hours  of  the  more  expensive 
machinery,  operated  by  higher  priced  employees.  Class  B 
covers  the  time  of  higher  priced  employees  doing  work  which  does 
not  require  the  use  of  machines.  Class  C  covers  the  machine 
hours  of  the  machines  of  small  value,  perforators,  etc.,  operated 
by  lower-priced  employees.  Class  D  covers  the  time  of  bindery 
girls  which  does  not  require  the  use  of  machinery. 

In  Classes  A  and  C  the  machine  hour  is  the  chargeable  unit, 
and  wages  of  the  operators  are  carried  to  the  Department  Pay 
Roll  Summary,  as  in  the  pressroom. 

It  is  advisable,  as  far  as  possible,  to  ascertain  the  cost  of  each 
individual  machine  or  group  of  machines. 

In  Classes  B  and  D  the  individual  hour  is  treated  in  the  same 
manner  as  the  individual  hour  in  the  composing  room,  the 
worker's  hour  unit  being  the  chargeab'e  unit. 

Machine  Composition  Department.  Monotype.  The  Key- 
board and  Caster  should  be  treated  as  two  separate  machines 
and  the  unit  of  time  is  the  machine  hour,  the  wages  being  car- 
ried to  the  department  pay  roll. 

Linotype.  In  linotype  work  the  machine  hour  is  the  unit  and 
the  operator's  and  machinist's  wages  are  charged  to  the  linotype 
department  pay  roll. 

When  machines  are  used  for  casting  borders,  quads,  leads, 
slugs,  and  the  like,  the  time  devoted  to  such  work  is  to  be  charged 
to  the  department  using  such  material  as  a  direct  department 
expense,  or  an  equipment  expense  if  it  becomes  part  of  the  gen- 
eral equipment  of  the  hand  composing  room. 

Metal.  The  metal  used  for  ordinary  machine  composition 
returns  to  the  machine  composition  department  for  ren.elting, 
therefore  it  will  not  be  necessary  to  make  a  metal  charge  be- 
tween different  departments. 

Metal  used  for  casting  material  or  equipment  for  the  hand 
composition  department  should  be  charged  to  that  department 
and  credited  when  returned. 

Press  Department.  The  press  being  the  factor  in  time  and 
record  keeping,  a  ticket  should  be  turned  in  for  each  press  instead 
of  each  employee.  When  desired,  a  pay  roll  slip  can,  in  addition, 
be  turned  in  by  the  employee.  The  time  is  entered  against  the 
job  the  same  as  from  the  other  tickets,  but,  in  addition,  the  delays 
and  idle  time  are  reported,  which  are  charged  against  the  indi- 
vidual press.  This  opportunity  to  disclose  the  aggregate  of  lost 
hours  in  the  pressroom  and  to  know  just  what  caused  the  loss, 
is  an  extremely  valuable  feature  al  tout  a  cost  system.  It  enables 
the  management  to  eliminate  otherwise  unseen  "leaks." 

Department  Pay  Roll.  The  pay  roll  has,  perhaps,  more  to  do 
with  the  accuracy  of  the  entire  Cost-finding  System  than  any 
other  blank  or  form.  The  pay  roll  of  each  department  should  be 
kept  separately,  and  these  departments  should  compare  with  the 
department  headings  on  the  Recapitulation  Sheet  of  Depart- 
ment Labor  Cost. 

An  employee  working  in  several   departments  on  and  off, 


218 


BOOKKEEPING  AND   COST  ACCOUNTING 


N.B.-When  you  can  fill  out  this  sheet  properly  you  will  know  the  cost  of  production  In  your  plant. 

SUndird  Uniform  Cost  Finding  Sj««m.  Fonn  OII-Medlum  Slio. 

Doltf!  TruothoUe  an  J  Fr*nklln  Clubs  of  Amcrlom-                                                                                                                                                                                                                                                                                            f\         /i                                / 

sn/^too-nj^^a..™.                              STATEMENT  OF  COST  OF  PRODUCTION  FOR  MONTH  OF  JW«/       191 6 

(Amount*  to  bo  changed  according  to  Inventor?) 

$    A*SO™ 

$     (^S0"-i 

$  /yjis" 

*  ?T3S&0  oo 

*  $? /  POO  OO 

$  i/S7S°! 

s  2. 650-^ 

U0.(o30™ 

Sq.Ft.  Floor  Space 

62.3- 

/3  IS 

(stkS 

i2x5V7 

£.e?3 

9<5(? 

/33(cZ 

Candle  Power  and  Horse  Power 

7-  '  c.p.      ii  p 

9  C.P.          H.P 

o2./c.P.         H.P 

7^C.P.            H.P 

/0q.p.  /*  o.p. 

/-4~C.P.        /S  H.p 

Selling 
Expense 

Stock  Handling. 

Storage,  Recoiling 

and  Shipping 

General 
Expense 

Hand  Comp. 

Linotype 

Job  Press 

Total 
Expenditures 

ITEM  NO. 
1 

Pay  Roll 

n 

7 

2 

9<f 

3 

0 

0 

Ik 

0 

c 

l 

7 

t 

1 

f 

7 

rs 

5 

0 

/ 

f 

0 

■'. 

W 

O 

:: 

7 

3 

M 

2 

Rent  and  Heat 

6 

q-S 

3 

S 

fS 

i 

8 

IS 

6 

9 

so 

S 

po 

: 

b 

?3 

" 

8 

5 

S.S 

3 

Light 

/ 

5 

i 

■il 

3 

IS 

/ 

0 

si 

1 

... 

•' 

'-,/ 

<V 

1 

JS. 

4 

Power 

/ 

:■■: 

V 

rJ 

:■ 

"■' 

8 

7 

4b 

5 

Insurance  and  Taxes 

71 

/ 

/ 

30 

1 

'■:■ 

1 

'5 

7 

7*- 

t. 

■re 

7 

<\ 

5.7 

6 

Interest  on  Department  Invest- 
ment 

2 

2.5 

.3 

3 

' 

0 

!  :• 

.'" 

'■ 

'■" 

1 

5 

- 

/ 

" 

:• 

3 

3 

3 

3 

IS 

7 

Depreciation 

3 

--•' 

5 

--: 

i 

t 

37 

5 

■ 

58 

3 

s 

:: 

2. 

': 

" 

J 

S 

33 

$  8 

Bad  Debts 

f 

0 

11 

7 

0 

3.3. 

9 

Spoiled  Work 

1 

'.:- 

i 

3 

fl 

/ 

3 

?! 

2 

'7 

7 

3 

n 

10 

Department  Direct  Expense 

H 

y 

Od 

2 

-' 

or 

i 

la 

S3 

3 

1 

II 

6 

:v 

5 

s 

w 

V 

¥ 

H 

a<? 

»  11 

Office  Stationary  and  Postage 

7 

h 

r 

03 
C 

7 

le 

bS 

*  IS 

Advertising 

S 

0 

W 

S 

:: 

0 

HS. 

*  13 

Cartage  and  Car  Fare 

3 

i> 

"5 

1 

b 

ao 

*  14 

Other  Miscellaneous  Expense 

1 

¥ 

0 

SO 

.o 

/ 

H- 

n 

^5"0 

15 

13 
■3 

16 

s  ■ 

17 

_J_ 

V 

3 

l? 

30 

18 

J^ria/-  otesyUAaJl  (S^ulm&e/ 

/ 

3 

7 

:.- 

»  19 

Total  Selling  Expense. 

1 

(, 

/ 

7 

■g 

*20 

Total  Stock  Handling  and 
Shipping 

• 

- 

? 

- 

H 

• 

s 

21 

Total  General  Expense 

2 

- 

V 

' 

■' 

22 

Total  Department  Cost  without  Generil  Expense 

/ 

3 

& 

S 

■■'.- 

£ 

7 

2 

'■/ 

5 

•+ 

0 

:: 

// 

? 

? 

c! 

77 

23 

Distribution  of  Ceneral  Expense                                  i  t  ^  r\  *t        oi- 
(Pro-rated  oo  basla  of  Department  COST )                      .//</£'/"'        0 

tn 

" 

0 

03 

/ 

H 

3 

^3 

2 

h 

s 

3 

a 

V 

u 

8 

jT5 

24 

Total  Cost  of  Departments 

e?) 

0 

- 

5 

*<i 

V 

3 

5" 

73 

5 

0 

5 

'- 

r 

4 

3 

S 

750 

25 

Chargeable  Hours  of  .Each  Department 

: 

'■ 

' 

2 

a 

3 

"' 

1 

b 

/ 

26 

NET  COST  PER  CHARCEABLE  HOUR 

I 

/ 

fi 

=':' 

27 

^vorafjp  N-f  Coot  per  Hour  frsf                                                        Months 

28 

PERCENTAGE  OF  PRODUCTIVE  TIME 

5 

9 

■ 

7 

T 

•' 

5 

6 

% 

29 

Pay  Roll  Cost  per  Chargeable  Hour 

;; 

f(7 

— 

30 

Department  Cost  per  Chargeable  Hjur 

i 

:■ 

/ 

5/ 

-'"' 

:tl 

General  Expense  Cost  per  Chargeable  Hour 

Si 

if 

2<? 

Form  9H.    Monthly  Statement  of  Cost  of  Production 


should  be  instructed  to  turn  in  a  time  ticket  in  each  department 
in  which  he  has  worked,  or  a  combination  ticket  having  a  column 
for  each  department  in  which  he  may  work. 

In  the  pay  roll  the  record  is  kept,  showing  how  much  time  is 
chargeable  and  how  much  is  non-chargeable.  This  record  will 
show  what  percentage  of  the  entire  pay  roll  is  non-chargeable,  a 
barometer  by  which  the  efficiency  of  the  department  manage- 
ment is  gauged. 

Chargeable  and  Non-chargeable  Hours.  This  record  should 
be  kept  that  comparisons  can  be  made  from  month  to  month  and 
from  year  to  year.  Headings  should  be  made  for  as  many 
departments  as  it  is  desired  to  preserve  a  record  of. 

The  figures  will  be  for  a  period  of  one  month,  and  will  show  the 
chargeable  and  non-chargeable  time  by  departments.  This 
information  will  show,  among  other  things,  whether  the  per- 
centage of  non-chargeable  time  is  within  reason.     Taking  the 


total  pay  roll  of  a  department  and  dividing  the  amount  by  the 
total  chargeable  hours,  gives  the  pay  roll  cost  of  the  chargeable 
hour. 

Press  Department  Record.  This  form  shows  the  chargeable 
and  non-chargeable  hours,  and  the  number  of  impressions  each 
day  from  each  press;  also,  how  much  time  was  expended  on  the 
make-ready  and  how  long  each  day  the  press  was  idle.  The 
entries  on  this  form  are  made  from  the  pressroom  Dailj*  Time 
Record. 

These  records  indicate  the  pulse  beat  of  the  plant  and  con- 
stantly tend  toward  increased  production  at  a  comparatively 
decreased  cost. 

Statement  of  Cost — No.  9H.  This  form  is  the  keystone  of  the 
System;  it  reflects  the  essence  of  what  has  gone  before  it. 

A  monthly  statement  is  strongly  recommended.  It  is  a  fore- 
gone conclusion  that  the  results  from  the  statements  will  vary 


COSTS   IN   A  PRINTING  SHOP 


219 


from  month  to  month,  yet  that  variation  should  be  known  as 
well  as  the  reason  therefor. 

This  method  is  advocated  from  the  fact  that  the  practice  of 
finding  an  average  of  averages  is  generally  conceded  to  be  inac- 
curate and  is  wholly  incorrect. 

It  is  advisable  to  have  headings  on  this  blank  for  every  depart- 
ment for  which  cost  of  production  is  to  be  found. 

Division  of  Expense.  Manufacturing  expense  is  distributed 
to  the  various  departments  as  follows: 

Pay  Roll.  Divided  as  per  Time  Reports  in  the  various  Depart- 
ments; Superintendent's  salary  distributed  over  departments  he 
supervises. 

Rent  and  Heat.  Divided  according  to  the  floor  space  occupied 
by  each  department. 

Light.  Divided  according  to  the  number  of  gas  burners  or 
candle-power  lamps  used  in  each  department. 

Power.  Divided  according  to  the  horse-power  hours  and  is 
found  by  multiplying  the  horse-power  of  motor  on  a  machine  or 
group  of  machines,  by  the  actual  running  hours  and  dividing  the 
hours  into  the  power  charge. 

Insurance  and  Tares.  The  total  for  the  year  is  determined 
on  actual  inventory  value.  Each  month  one-twelfth  is  dis- 
tributed over  departments  according  to  the  inventory  value  of 
equipment  in  the  department. 

Interest  on  Investment.  The  standard  rate  of  6  per  cent  per 
annum,  hence  .005  per  month,  will  be  charged  to  each  depart- 
ment upon  the  value  of  the  equipment  in  such  department- 
Interest  on  the  investment  in  the  building,  together  with  main- 
tenance costs  thereof,  will  be  spread  over  the  various  depart- 
ments in  lieu  of  rent. 

Depreciation.  The  standard  raies  of  annual  depreciation  and 
obsolescence  on  different  properties  as  fixed  by  the  International 
Cost  Congress  will  be  applied  monthly  on  the  purchase  price  of 
the  equipment  in  each  department,  on  the  following  basis: 

Type 25  per  cent 

Standard  Machines 10  per  cent 

Type  Stands,  Chases,  Stones,  etc 10  per  cent 

Buildings  owned  and  occupied  by  plant 5  per  cent 

Rod  Debts.  The  total  sales  for  the  year  are  determined  by 
past  experience,  and  from  that  amount  1  per  cent  is  found  and 
divided  by  twelve  to  arrive  at  the  amount  per  month.  Distrib- 
uted over  departments  through  General  Expense. 

Spoiled  Work.  Absorbed  through  General  Expense,  or  charged 
direct  to  department  at  fault. 

Department  Direct  Erpense.  Expense  incurred  for  any  par- 
ticular department  should  be  charged  direct  to  that  department 

Office  Stationery  and  Postage.  Absorbed  through  General 
Expense. 

Cartage,  Carfare,  and  Miscellaneous  Erpense.  Absorbed  through 
General  Expense. 

Advertising.  Absorbed  through  General  Expense  or  Selling 
Expense. 

Selling  Erpense.  Absorbed  through  General  Expense  or 
treated  as  separate  department. 

Stock  Handling  and  Shipping.  Absorbed  through  General 
Expense  or  treated  as  separate  department. 

Total  General  Erpense.  Distributed  over  departments  on 
basis  of  total  department  cost. 

Resume.  Each  workman  turns  in  a  Daily  Time  Report 
showing  what  jobs  he  has  worked  on  and  what  work  has  been  per- 
formed. The  Foreman  each  evening  checks  them  against  inac- 
curacies and  then  passes  them  to  the  Cost  Clerk.  From  these  Time 
Tickets  the  Pay  Roll  is  made  up  or  checked.  The  total  time, 
chargeable  and  non-chargeable,  shown  on  the  pay  roll  of  each 
department  is  entered  in  the  monthly  record  of  the  department, 
chargeable  and  non-chargeable  hours  under  the  proper  depart- 
ment head;  the  total  of  each  pressroom  Daily  Time  Ticket  is 
carried  to  the  monthly  Record  of  Chargeable  and  Non-chargeable 
hours  and  Press  Impressions,  which,  when  entered  daily,  gives  a 


record  for  the  month.  The  monthly  total  of  the  pay  roll  of  each 
department  is  then  carried  to  the  Statement  of  Cost.  There- 
after through  the  process  outlined,  is  learned  the  amount  of 
money  expended  in  each  department,  and,  dividing  the  total 
(as  shown  on  line  No.  24)  by  the  number  of  chargeable  hours,  the 
cost  of  each  productive  hour  is  ascertained. 

The  Cost  Clerk  posts  or  charges  to  each  Individual  Job  Record 
the  time  taken  on  each  operation,  as  shown  by  the  employee'-. 
Daily  Time  Ticket.  When  the  job  is  completed,  the  number  of 
hours  expended  in  each  department  are  totaled  and  the  exten- 
sion is  made  at  the  average  price  per  hour  as  determined  bj  the 
Statement  of  Cost.  This  will  give  the  total  (est  including  all 
overhead,  department  and  general.  To  such  f'gures  should  lie 
added  the  proper  proportion  of  profit  which  should  not  be  less 
than  25  per  cent  added  to  cost  of  production. 

The  first  essential  feature  is  that  all  nateiial  and  supplies 
shall  be  strictly  accounted  for.  One  person  si  ruld  have  control 
over  all  issues  from  stockroom.  No  material  should  be  issued 
except  on  a  regular  requisition.  The  Stock  Clerk,  after  filling  the 
order  passes  the  requisition  to  the  Cost  Clerk  to  be  charged 
against  the  job  on  the  individual  Job  Record.  The  Stock  Clerk 
can  enter  the  requisition  on  his  record,  n  aking  deduction  for  the 
amount  given  out,  and  show  the  balance  remaining  on  hand. 

The  following  list  of  operations  in  the  printing  and  allied 
trades  is  arranged  for  the  convenience  of  those  using  Cost  Sys- 
tems so  that  they  can  all  use  the  same  number  for  the  same 
operation  and  so  that  the  number  will  at  once  identify  the  de- 
partment in  which  the  operation  is  performed. 

This  is  arranged  for  by  having  the  first  figure  of  each  number 
indicate  the  department  except  in  the  hand  composing  room, 
which  is  indicated  by  two  figures  instead  of  three  figures,  thus: 

1  to    99 — Hand  Composition. 
101  to  199 — Machine  Composition,    viz.:     101    to    149    lino., 
150  to  199  mono. 
201  to  299— Presswork. 
301  to  399— Bindery  work. 
401  to  499— Litho  Dept. 
501  to  599 — Photo-Engraving. 
601  to  699 — Electrotyping. 
701  to  799— Steel  Plate  and  Die  Work. 

In  the  lists  of  work  items,  those  marked  with  a  *  indicate 
that  the  time  is  chargeable;  those  with  a  f  that  it  is  non-charge- 
able. Items  marked  with  both  *  and  f  may  be  either  chargeable 
or  non-chargeable,  according  to  circumstances.  Thus,  changes 
or  corrections  made  on  the  press  which  are  clearly  due  to  errors 
made  by  the  office  would  be  non-chargeable,  while  if  they  are 
made  by  order  of  the  customer  they  would  be  chargeable. 

The  pamphlet  from  which  the  above  extracts  are  taken 
contains  a  complete  set  of  forms,  ten  in  number,  all  of  them 
85XH  in.  in  size,  so  that  they  may  be  put  in  a  9X12  in. 
envelope.    The  forms  are  the  following: 

Form  1.  Job  ticket.  Envelope  9X12  in.  Has  ruled 
spaces  for  complete  instructions  regarding  the  job,  Date, 
Salesman,  Job  No.,  Date  Wanted,  Customer's  Name 
and  Address,  Quantity  and  Description  of  work,  Stock, 
Ruling,  Composition,  Plates,  Press,  Bindery,  Office  Delivery. 

Form  2.  Individual  Job  Record.  Ruled  so  as  to  contain 
summaries  of  the  time  tickets  for  Hand  and  Machine  com- 
position, Cylinder  and  Job  Presswork,  Bindery,  Deliveries, 
and  the  complete  costs  for  Stocks,  Composing,  Presswork, 
Bindery,  and  Miscellaneous,  to  the  total  of  which  costs  the 
profit  25  per  cent  is  added  to  make  the  selling  price. 

Form  3C.  Compositor's  Daily  Time  Ticket.  Contains 
the  employee's  name  and  clock  number,  date  and  columns 
for  Job  No.,  Customer's  Name,  Kind  of  Work  (by  symbol 


220 


BOOKKEEPING  AND   COST  ACCOUNTING 


r                    , 

EFFICIENCY  RECORD  AND  COST  ACCOUNT  FOR  ALL  KEYBOARDS:  MONTH  OF                                                      191 

— - — ^^^                       Keyboard 

Summary ~____Operators 

of  Wanes 

COST  SUMMARY 

Wages  ot  Keyboard  Operators    on  Composition 

Wages  ot  Keyboard  Ouorators    on  CouijioaUlon 

Wages  of  KeyLjoord  Operators    on  Changes 

Wages  or  Ktyooua  operators    on  Chutes 

Wages  of  Keyboard  Operators    uu  .Mi^.il,.i->- 

Wages  of  K.-y  board  "pontors    oo  Misn.-llaneou  = 

Total  Waces  of  KejUoarii  "iieruivrs  iv-Iubivi 
of  Time  Outside  of  Keyboard  Dcpt. 

Tutal  \\s;cr  if  ErybuoiJ  iterators  utlueive  of 
Time  Outside  of  Keyboard  Dcpt. 

Total  Em*  Bet 

Machine  Depreciation 

ttnt-,   i'..;i   I',  r  1  -■    L.mu 

Maintenance 

Ems  Per  Htur  on  Cou.p<.sition 

Power 

Minutes  for  Correction  Per  1000  Ems 

Light  and  Heat 

Total  Correction  Cost  Per  1000  Eiub 

Kent  (Floor  Spcce) 

MACHINE  ACCOUNT 

MAINTENANCE 

Interest 

Net  Value  Keyboard  Plant  as  oh  own  In  Last  H.unth's  Keport 

Monotype 

li-.VLiii'i-  Ni'>. 

K,ij  Ih.»u  i  l'n|"  r 

Misc. 

Insurance 

Lbs. 

Cost 

Part 

Monotype 
Invoke  No. 

Additions 

Taxes 

Pi  oof  Reading 

Ems  at            Cts.  Per  1000 

Proportion  of  Composing  Room  Lxpenee 

Proportion  of  General  Expense 

A  Total  Keyboard  Lipensc  \\  ithout  Corjeutlons 

[>  Total  Hours  on  Composite  u 

Cost  per  Productive  Hcur  Without  CorrectioLs 
A-VB 

a  Total  Keyboard  Expense  Vt  Ithuut  Curreotiuns 

TUal  Correcting  Cost 

Totals 

f  Total  Keyboard  Expense  Including  Correction; 

"Ill  *, 

Total  of  above  Expenses 

Q  Total  Hours  on  Composition 

Date 

Misc.  Expenses* 

Cost  per  Productive  Il.>ui  Including  l'orrt,.iii>i  : 
CH-B 

p\  "irtal  Ems  Composed 

Net  Value 

Coat  per  101X1  Etna  Uncorrected  A-fD 

Amount  to  le  Charged  for  Dcpreotatioii  this  Month 

Cost  per  1000  Emfl  Corrected  C-rD 

Net  Value  to  be  Carried  t«  Neil  Mouth's  !.., 

Total  Maintenance 

KEYBOARD  SUMMARY:   MACHINE  NOS. 

MONTH  OF 

191 

OPERATOR                                                                               KEYBOARD  NO. 

Day 

of 

Montb 

OPERATOR 

KEYBOARD  NO. 

Time  Summary  for  Each  Day 

Total 
Gross 

Total 
W  ages 

Time  in 
Minutes 

Total 

Correction 

Cost 

Time  Summary  fur  Each  Day 

Total 
Gross 
Ems 

Total 

Operator's 

Wages 

Correction 
Time  fn 
Minutes 

Total 

Correction 

Cost 

|    sttion 

Changes 

Misc. 

Time  Off 

Keyboard 

Total 

Ccmpo- 

Changes 

I  Time  Off 
Misc.      _     . 

|  Keyboard 

(S/  lines t  one  for  each  day) 

1 

1             1 J 1 

i 

s 

1 

Totals 

Per  Cent 
of  Total 

Grots  Ems 
Per  Hour  on 
Composition 

Minutes  for 

Corrections 
l'.r  Ihi.l)  KmB 

l'.r  Cent 
of  Total 
Hours 

Gross  Ems 
Per  Hour  on 
Composition 

Minutes  Tor 
Corrections 
Per  10U)  Ems 

Total  Non- 
Productive 

Changes  *  Mlaa. 
(Size  of  blank  it  x  *V 

Percentage 
Non-ProductiTS 
Hours  to  Total 
Time  of  Keyboard 

in.  including  margi 

Wages 
Par 

lOuO  Ems 

i  for  loose  leaf  i 

Correction 
Cost  Per 

iooo  Ems 
inder) 

Total  Non- 
productive 
Hours  = 
Changes  +  Mlao. 

Percentage 
Non -Product!  vo 
Hours  to  Total 
Time  of  Keyboard 

Per 

1000  Ems 

Correction 
Cost  Per 

1U00  Ems 

Form  LM1.    Efficiency  Records  for  Keyboards 


number),  Time  Commenced,  Time  Left  off,  Hours  charge- 
able and  non-chargeable. 

Form  3MC.   Machine  Compositor's  Daily  Time  Ticket. 

Form  3P.  Pressroom  Daily  Time  Ticket,  with  names  of 
pressman  and  feeder  and  number  of  impressions. 

Form  3B.   Bindery  Time  Ticket. 

Form  4.  Department  Pay  Roll.  Contains  names  of  work- 
men, columns  for  hours  chargeable  and  non-chargeable 
for  six  working  days,  total  hours  (C.  and  N.  C.)  rate,  amount, 
and  cost  of  non-chargeable  hours.  At  the  bottom  there 
are  figures  of  total  department  pay  roll,  total  chargeable 
hours,  average  pay  roll,  cost  per  chargeable  hour,  and  ratio 
of  non-chargeable  to  total  pay  roll. 


Form  5.  Monthly  Record  of  Department  Chargeable 
and  Non-chargeable  hours,  with  lines  for  each  day  in  t  he 
month,  and  columns  and  figures  for  hours  (C.  and  N.  C.) 
for  Hand  and  Machine  Composition,  Cutter,  Folder  and 
Bindery  C,  Bindery  D. 

Form  9H.  Statement  of  cost  of  production  for  month. 
This  form  is  here  reproduced  (with  columns  for  Small 
Cylinder,  Cylinder  Press,  Cutting,  Machine  Folding,  Bindery 
C  and  Bindery  D  omitted). 

There  are  two  criticisms  that  may  be  made  of  this  state- 
ment of  cost  of  production.  The  first  is  that  Selling  Expense 
is  added  into  General  Expense  and  distributed  or  pro-rated 
on  the  basis  of  department  cost.    There  is  no  necessary  re- 


COSTS  IN  A  PRINTING  SHOP 


221 


lation  between  the  costs  of  the  work  done  in  two  depart- 
ments, say  hand  composition  and  linotype,  and  the  cost 
of  selling  the  product  of  these  departments.  If  each  depart- 
ment produced  $1000  worth  of  work  in  a  month  the  cost 
of  selling  the  work  of  one  might  be  $20  and  that  of  the  other 
S200.  The  second  is  that  it  takes  no  account  of  the  loss  due 
to  idleness  of  a  department  through  failure  to  get  orders 
for  it.  Suppose  that  there  was  no  work  and  no  pay  roll  for 
the  linotype,  its  departmental  expense  ($292.30— $201.86  = 
$90.44)  and  its  share  of  the  general  expense  ($143.43)  would 
have  to  be  distributed  to  the  productive  hours  of  the  other 
departments,  unduly  increasing  the  apparent  cost  of  the 
productive  hour  or  net  cost  per  chargeable  hour  in  each 
of  the  departments.  If  a  linotype  failed  to  get  any  work 
in  a  given  month  there  is  no  reason  why  the  loss  incurred 


thereby  should  go  to  increase  either  the  cost  or  the  selling 
price  of  hand  composition  or  press  work  or  binding.  The 
loss  should  appear  in  the  accounts  as  "unearned  burden," 
and  if  that  account  had  a  debit  balance  at  the  end  of  the 
year  it  should  be  charged  to  Profit  and  Loss. 

The  errors  in  cost  estimates  due  to  these  two  depar- 
tures from  the  principles  of  the  best  accounting  systems 
are,  however,  probably  not  serious  in  any  well-managed 
printing  establishment,  and  it  may  not  be  worth  while 
to  keep  an  unearned  burden  account  in  order  to  avoid 
them. 

Monotype  Cost  Records.  The  Lanston  Monotype 
Machine  Co.,  Philadelphia,  issues  a  pamphlet  entitled 
"  Monotype  Cost  and  Efficiency  Records  "  with  sample 
blank  forms. 


Profit  and  Loss  Statement  for  Month  of 


191 


Classified  Items 

See  reverse  side  for 

explanations 

Totals 

Labor  Departments 

Office 

and 

Shipping 

Dept. 

Paper 
Stock 

Ratio  of 
Total 

Hand 
Com- 
position 

and 
Mono- 
types 

Linotypes 

Cylinders 
and       ,    % 
Stockroom 

Job  Department 

Bindery 

not  charge- 
able to 

Expense 

Com- 
position 

Platens 

and % 

Stockroom 

otherwise 

unprovided 

for 

The  classified  items  printed  in  the 
column  with  this  heading  are  as 
follows: 

Advertising 

Allowance 

Bond  Interest 

Cartage  (Includes  Motor  Truck) 

Commissions 

Depreciation 

Discounts  on  Sales 

Expense 

Ink 

t  /    Fire 

Insurance   \    T .  ,.,., 
I    Liability 

Interest  and  Note  Discounts 

Legal  Expenses 

Light 

Maintenance — Electrical  Work 

Oil 


Power 


Pay  Roll  Total— $ 

Labor  Departments 

Maintenance 

Office 

Salesmen  (if  on  salary  basis) 

Shipping  Department 

Stock  Handling 
Electric 
Gas 
Rent 
Repairs 
Rollers 

Salary — O  fficera 
Spoiled  Work 
Stationery 
Taxes 
Telephone 
Type  Washes 
Uncollectible  Accounts 
Water  Supply 


Wire  and  Bindery  Supplies 
Wrapping  Paper  and  Twine 

Office  Column  Total 

Same   Pro-rated    (Per   Total   Ex- 
pense) 

Totals,  Including  Overhead 

Merchandise  Purchases 
Electros  and  Engravings 
Metal 

Outside  Labor 
Paper  Stock 

Publication  Bulk  Postage,  etc. 
Totals 

Grand  Total  Cost  of  Departments 
Inventory  First  of  Month 
Inventory  Last  of  Month 
Total  Decrease  (Add  to  Costs) 


Total  Increase  (Subtract  from  Costs) 
Net  Increase — Decrease 

Total  Net  Costs  (Everything  to  this 
point  includes  all  expenditures) 

Income 
Metal 

Publication  Postage,  etc. 

Sales  (other  than  classified  above) 

Total  Sales 
Discounts  on  Purchases 
Depreciation  Reserve  Interest 
Total  Income 

n  -o     cA  /Deduct  Total  Net\ 

Gross  Profit     /  _,  ,  _       ,  \ 

«  T  M  Costs   from   Total  1 

Gross  Loss    IV.  / 


\     Income 


Net  Profit 
Equivalent  to 


%  of  Net  Sales 
%  on  Net  Costs 
Departmental    Ratio  to   Net  Costs 


Comparative  Statement  Addendum 

Profit 

Profit 

Month  of 

Net  Sales 

Total  Income 

Total  Expense 

Net  Profit 

Percentage  of 
Net  Sales 

Percentage  on 
Net  Costs 

191 

191 

Increase 

Decrease 

Summary 

From 

191 

To 

191 

From 

191 

To 

191 

Increase 
Decrease 

Form  LM3.     Profit  and  Loss  Statement 


222 


BOOKKEEPING  AND   COST  ACCOUNTING 


The  object  of  this  system  is  to  furnish  the  necessary  blanks  (5) 
to  enable  the  Monotype  user,  First,  to  determine  the  Productive 
Hour  Cost  of  both  keyboarding  and  casting  in  accordance  with 
any  of  the  standard  cost  system  methods;  Second,  to  increase 
production  by  furnishing  data  as  to  the  efficiency  of  both  the 
keyboarding  and  the  casting  departments;  that  is,  (a)  the 
efficiency  of  individual  operators  (their  output  per  hour  and  its 
cost,  including  cost  of  corrections)  and  (b)  the  cause  of  non- 
productive time  (lack  of  work  or  delays  in  operating).  The 
system  is  a  compilation  of  the  best  features  of  a  number  of  sys- 
tems in  actual  use. 

A  statement  is  made  of  seven  principles  upon  which  the  system 
is  based.    The  first  two  are  of  especial  interest  to  cost  accountants. 

First.  The  object  of  a  cost  system  is  to  show  the  manager 
what  work  costs  in  his  shop  under  any  given  conditions.  A  cost 
system  that  gives  only  total  costs,  without  any  explanation  of 
excessive  costs,  serves  much  the  same  purpose  as  the  lock  on  the 
front  door;   it  keeps  work  out  of  the  office. 

Second.     While  the  first  object  of  a  cost  system  is  to  furnish 


information  as  to  prices  to  charge  for  work,  it  is  almost  as  im- 
portant that  it  point  the  way  to  increasing  efficiency  and  reducing 
production  costs  so  that  work  may  be  sold  at  greater  profit. 

Forms  LM1,  LM2  show  the  printing  on  the  blanks  used  for 
efficiency  records  of  keyboards  and  casting  machines  (reduced  in 
size). 

Profit  and  Loss  Statement 

All  expenses  that  can  be  positively  identified  with  a  depart- 
ment should  be  charged  to  that  department  and  all  others 
charged  to  Office,  to  be  finally  pro-rated  over  each  department. 
For  instance:  Compositors'  tickets  printed  for  the  Composing 
Room  should  be  charged  as  "stationery"  expense  against  that 
department,  but  order  tickets,  although  used  by  all  the  depart- 
ments, should  be  charged  to  Office. 

The  most  equitable  pro-rata  distribution  to  the  other  depart- 
ments of  the  Office  and  Shipping  Department  expense  is  on  the 
ratio  that  each  individual  department  (pay  roll  included)  bears 
to  the  total  expense. 


EFFICIENCY  RECORD  AND   COST  ACCOUNT  FOR  ALL  CASTING  MACHINES:  MONTH  OF                                       191 

Day 
of 

Month 

Time  Summary  for  Each  Day 

Total 
Eras 

Total 
Lbs. 
Type 

Wages 

COST  SUMMARY 

Changes     Delaja 

Waiting 

Tjpe 

TUnkin; 

Operator 

Runners 

1 

Wages    Composition 

1 

(3/  l in 

"3,  '<  />'•!•  inch) 

2 

Delaj  ^ 

3 

4 

Waiting 

5 

Type  Mi-Unf 

6 

Total  Wages 

7 

8 

Machine  Depreciation      (See  Over) 

9 

Metal                  ■*                  (    ■■        "     ) 

10 

Maintenance 

1 

12 

Power 

1 

13 

Gas 

14 

Water 

15  . 

Light  and  Heat 

16 

17 

Rent    (Floor  Space) 

18 

Interest 

19 

Insurance 

20 

21 

Taxes 

22 

23 

25 

Proportion     Comp.  Room  Expense 

1 

26 

"                General 

27 

Total  ■ ' .i s t i n ■  ■  Room  Expense 

28 

Credit  by                                                lbs.  of  type  made 
in                               hours  at                          cents  per  hotir 

29 

30 

31 

Total  Productive  Hours 

Percentage    1 

of 
Total  Hours  [ 

Net  Ems  pel 

Composition 

Lba.  Tjpc 
per 

Hour 

Total 
Wages 

Cost  per  Productive  Hour 

Total  Ems  Composed 

duotive 
Changes 
t  WftHii 

r  Delaja 

Nod- Prod 
Hours  to 
Total  Hoi 

in 

Composi- 
tion per 
1000  Ems 

per 
Lb. 

Sorts 

Cost  per  1000  Ems 
Size  M  x  SH  including  margin 

Form  LM2.    Efficiency  Record  of  Casting   Machines 


CASTING  MACHINES  NOS.                                                                                                          MONTH  OF                                            191 

MACHINE  ACCOUNT 

METAL  ACCOUNT 

MAINTENANCE 

Net  Value  Casting  Machine 
Plant  as  Shown  in  Last 
Month's  Report. 

Net  Value  Metal  on 
Hand  as  Shown  in  Last 
Month's  Report. 

Monotype 
Invoice 

No. 

Caster 
Parts 

Mold 
Repairs 

Matrix 
Replace- 
ments 

Misc. 

Monotype 
Invoice 

No. 

Additions 
Items 

Date 

Poundf 

Purchased  From 

Cost 

(13  lines) 

I 

{fl  lints) 

1 

1      " 

Deduct 

Discarded 

Material 

at 

Depreciated 

Value 

(5  lines) 

Dadnct 

Amount 
Rnhad 

ttatal 

DruU 

Sold 

Totals 

1 

Total  of  Above  Expenses 

Date 

Misc.  Expenses 

Net  Value 

Net  Value 

[10  lines) 

Amount  to  be  Charged  I'm 

Amount  to  be  Charged  for 
Depreciation  This  Montb 

Net  Value  1o  be  Carried 
to  Nest  Month's  Report 

Net  Value  to  be  Carried 
to  Next  Month's  Report 

Total  Maintenance 

Reverse  of  Form   LM2 


COSTS  IN   A   PRINTING  SHOP 


223 


In  this  statement,  labor  is  divided  into  six  classifications,  viz.: 
Hand  Composition  (including  all  processes  done  by  "hand"), 
Linotype  Composition,  Cylinder  Presswork,  Job  Composition 
(department  for  "job"  work  as  distinguished  from  publications, 
etc.),  Platen  Presswork,  and  Binding.  In  our  plant,  the  Mono- 
type machines  are  used  so  extensively  for  making  type  for  hand 
use,  that  while  separate  records  are  kept,  the  cost  is  included  in 
Hand  Composition.     See  Form  LM3,  page  221. 

Titles  and  Definitions  op  Accounts 

Advertising.  All  items  of  publicity  promoting  expense  that 
can  be  so  classified,  viz.;  Advertising  in  trade  journals,  news- 
papers, etc. 

Allowances  such  as  shortage  or  overcharge  are  charged  to  the 
department  at  fault,  otherwise  to  Office. 

Bond  Interest.  Interest  on  bonded  indebtedness,  pro-rated 
to  departments  according  to  value  of  departmental  invest- 
ment. 

Cartage  and  Express.  Charged  to  departments  incurring  it, 
otherwise  to  Office  and  Shipping. 

Commissions.  Money  expended  for  obtaining  business. 
Pro-rated  to  the  departments  on  the  basis  of  the  departmental 
proportion  of  the  salesmen's  monthly  total  sales. 

Depreciation.  Fixed  percentage  or  proportion  is  included  in 
the  costs  of  every  department  each  month,  and  deducted  from 
the  value  of  the  Machinery'  and  Fixtures  account. 

Discount  on  Sales.  Pro-rated  to  departments  on  basis  of 
their  proportion  of  the  total  sales  on  which  discounts  were 
granted. 

Expense.  Charged  as  much  as  possible  direct  to  depart- 
ments. Items  which  cannot  be  included  under  Repairs  or  other 
classifications. 

Ink.  Total  amount  purchased  for  each  department,  adding 
to,  or  deducting  therefrom,  the  difference  between  the  value 
of  the  ink  inventory  at  the  beginning  and  at  the  close  of  the 
month. 

Insurance — Fire.  One-twelfth  the  year's  expense  and  pro-rated 
as  per  investment. 

Insurance — Liability.  Includes  Workmen's  Compensation 
and  Public  Liability. — Pro-rated  on  basis  of  monthly  pay  roll  at 
the  premium  rate. 

Interest  ind  Note  Discounts.  Interest  or  discount  on  notes 
given  or  discount  on  notes  received.  Not  for  interest  on  invest- 
ment, which  is  purposely  not  included. 

Legal  Expense.  Charges  for  collecting  accounts  and  other 
legal  services. 

Light.  Charged  to  departments  according  to  use,  on  the  basis 
of  meter  readings. 

Maintenance — Electrical  Work.  New  work  that  makes  a 
real  and  tangible  asset  is  considered  a  Machinery  and  Fixtures 
account  item.  Most  electrical  work  is  not  an  asset  and,  there- 
fore, considered  an  expense  to  be  charged  to  the  department 
incurring  it. 

Oil.     Charged  to  departments  according  to  use. 

Pay  Roll.  The  pay  roll  sheets  are  arranged  so  that  each  depart- 
ment shows  not  only  its  productive  labor,  but  such  non-productive 
labor  as  foreman,  distribution,  boys  employed  in  the  department, 
even  floor  sweeps  or  porters  for  that  department.  The  gross 
amount  of  pay  roll  is  classified  and  labor  not  wholly  chargeable 
to  one  department,  such  as  proofreading,  is  divided  and  charged 
to  departments  in  proportion  to  service  rendered.  Office  and 
Shipping,  although  individually  itemized,  are  finally  pro-rated 
to  the  other  departments. 

Power.  Charged  to  departments  according  to  use  on  the  basis 
of  meter  readings.  Gas  used  for  Linotypes  and  Monotypes  is 
charged  to  them  as  power  expense  and  not  as  light. 

Rent.  Charged  to  departments  on  the  proportion  of  space 
occupied  by  them. 

Repairs.  Charged  to  departments  incurring  them.  When 
actual  costs  for  a  month  are  unusually  low,  a  reserve  is  established 
for  future  additional  cost. 


Rollers.  Charged  to  departments  according  to  use.  When 
actual  costs  for  a  month  are  unusually  low,  a  reserve  is  estab- 
lished for  future  additional  cost. 

Salary — Officers.  For  officers  of  the  company;  not  included, 
in  the  Office  Force  pay  roll. 

Spoiled  Work. — Billed  at  cost  and  charged  to  the  department 
incurring  it,  or  to  the  Office,  if  the  Office  is  at  fault.  Includes 
also  those  allowances  which  have  to  be  made  because  of  spoiled  or 
inferior  work. 

Stationery.  Distributed  to  the  departments  incurring  the 
expense. 

Taxes— City  Personal.     The  estimated  total  for  the  year  pro 
rated   monthly   and   apportioned   as   per   investment.     Federal 
Income  Tax  pro-rated  to  the  departments  on  the  basis  of  their 
monthly  earnings. 

Telephone. — Charged  to  Office. 

Type  Washes.  Charged  to  departments  using  them.  Per- 
centages of  use  are  established  and  the  cost  divided  accordingly. 

Uncollectible  Accounts.  Reserve  for  bad  debts  established 
and  charged  to  Office. 

Water  Supply.  Monthly  proportion  of  yearly  cost  pro-rated 
to  departments  on  the  basis  of  number  of  faucets  in  each  depart- 
ment. 

Wire  and  Bindery  Supplies.  Includes  also  such  purchase:  - 
silk,  cloth,  paste,  glue,  etc.,  adding  to,  or  deducting  therefrom,  the 
difference  between  the  inventory  value  of  these  items  at  the 
beginning  and  at  the  close  of  the  month. 

Wrapping  Paper  and  Twine.  This  is  part  of  the  Shipping 
expense,  adding  to,  or  deducting  from  the  total  purchases  for  the 
month,  the  difference  between  the  inventory  value  of  these 
items  at  the  beginning  and  at  the  close  of  the  month. 

In  cases  where  wrapping  paper  and  twine  is  billed  to  a  par- 
ticular department,  the  cost  thereof  is  charged  to  that  depart- 
ment. 

The  blank  lines  following  may  be  used  for  other  accounts 
desired. 

Office  and  Shipping  Department  Total.  Pro-rated  to  the  other 
departments  as  per  ratio  of  total  expense,  including  pay  roll. 

Totals  Including  Overhead.  By  using  the  chargeable  hours 
in  any  department  as  the  enumerator,  these  totals  will  give  cost 
per  hour  (exclusive  of  interest  on  investment,  which  is  purposely 
not  included).  To  obtain  the  true  costs  per  hour,  it  is  absolutely 
necessary  to  keep  accurate  records  of  the  chargeable  hours  in 
each  department  for  the  month. 

All  the  accounts  classified  above  are  such  as  are  incurred 
directly  in  connection  with  manufacturing,  in  distinction  from 
such  as  electros  and  engravings,  and  paper  stock,  which  are  not 
labor  items,  and  labor  purchased  outside,  which  cannot  properly 
be  interjected  in  hour  costs. 

Merchandise  Pchchases 

Electros  and  Engravings.  Total  cost  of  all  electrotyping, 
engravings,  original  designs,  etc.  Included  in  the  Composing 
Room  costs  because  that  department  is  credited  with  the  value 
of  the  sales  thereof. 

Metal.  Total  amount  billed  each  month  and  credited  to  the 
Metal  account  through  Sales  Book.  Separate  and  distinct  from 
metal  purchased  for  increasing  the  supply. 

Outside  Labor.  Total  cost  of  manufacturing  done  outside, 
because  of  lack  of  special  facilities  required,  or  necessitated  by 
overtaxing  capacity.  Charged  to  departments  that  otherwise 
could  have  done  the  work,  as  these  departments  receive  due 
credit  through  the  Sales  Book. 

Paper  Stock.  Total  purchases  for  "print"  paper,  excluding 
wrapping,  tympan,  slip-sheets,  make-ready,  proof  paper,  etc., 
which  items  are  charged  to  the  departments  using  them. 

Publication  Bulk  Postage.  Value  of  Bulk  Postage,  prepaid 
stamps,  expressage  and  freight  that  is  chargeable  to  customers. 
Must  not  be  confused  with  Cartage. 

Inventory.  At  the  end  of  each  month,  an  inventory  of  work 
in  process  is  taken  from  the  Office  record  tickets  and  figured  at 


224 


BOOKKEEPING  AND  COST  ACCOUNTING 


-actual -average  costs.  To  their  respective  departments  is  added 
the  inventory  value  of  electros  and  engravings,  papeT -stock,  sup- 
plies, etc.,  on  hand,  and  the  difference  between  the  total  inven- 
tory at  the  end  of  the  month  and  that  at  the  beginning  of  the 
month  in  each  department,  added  to  or  subtracted  from  the 
Grand  Total  Cost  of  Departments,  produces  the  Net  Costs. 

Income  means  sales  and  any  other  money  or  accounts  received 
not  properly  included  therein.  The  term  "Sales"  covers  almost 
everything  sold,  even  waste  paper  and  paper  stock  cases,  which 
are  billed  to  the  purchasers.  Does  not  include  proceeds  of  old  or 
•discarded  machinery  sold. 

Discount  on  Purchases.  Received  for  cash  payments  and  pro- 
rated to  departments  on  basis  of  their  total  purchases.  Does 
not  include  so-called  "trade  discounts." 

Depreciation  Reserve  Interest.  Interest  accrued  monthly  on 
Depreciation  Reserve  on  deposit  in  bank  and  pro-rated  to 
departments  on  same  basis  as  the  charge  for  Depreciation. 

The  bla:ik  lines  which  follow  may  be  used  for 

Bank  Balance  Interest.  Received  quarterly  or  semi-annually 
from  Bank  for  interest  on  daily  balances.  Pro-rated  in  proportion 
to  individual  departmental  profits  for  those  particular  periods. 


Bills  Receivable  Interest.  Received  on  promissory  notes  and 
pro-rated  to  departments  on  the  basis  of  their  proportion  of  the 
total  sales  for  which  the  notes  were  received. 

The  Net  Costs  deducted  from  the  Total  Income  will  produce 
the 

Net  Profit  or  Loss,  both  in  gross,  and  detailed  by  depart- 
ments. 

Federal  Printing  Co.  (with  which  is  consolidated  the  Green- 
wich Printing  Co.),  New  York.  This  is  a  large  establishment 
making  a  specialty  of  printing,  binding,  and  mailing  weekly 
and  monthly  technical  and  trade  journals.  It  has  a  recording 
cost  system  similar  to  that  of  the  United  Typothetse.  The 
blank  forms  for  reporting  the  time  spent  by  the  workmen  on 
the  several  jobs  have  been  designed  with  great  care  so  as  to 
furnish  the  desired  information  with  a  minimum  of  clerical 
labor.  Reproductions  of  the  principal  forms  (greatly  reduced 
in  size),  together  with  some  notes  concerning  some  of  them, 
are  given  in  the  following  pages. 


Made  by 

Checked  by 
Salesman  


{Size  of  Sheet  SJj  x  II  a  in.) 


FEDERAL  PRINTING  COMPANY 


ESTIMATE 


Previous  Yes_ 

No 


Date 


For 

Address 

Description^ 


_L91 


X-K 


SPECIFICATIONS- Give  Details 


Consisting  of 

Trimmed  Size  Inside 

■  •            ••   Cover  . 
Inside  Printed  in 


.  Pages  and 

X 


No  Cover 

Cover -Flush -Ext. 

Oblong 

Upright 

Exten. 

Flush 


1st  &  1th  Cover  Printed  in_ 

2d  &  3d  _ 

Bound 


Delivery  to  be  made  _ 


COMPOSITION 


Inside — Type  Page- 


.Pp. 


Ems  to 
Page 


Mono. 
Lino. 


Picas 
"  Inches 


.  Per  Page  _ 


Hours  Time  Work        ©_ 


Imposition^ 


[Three  more  columns 
for  totals  etc.) 


Foundry— 

EXTRAS    

Cover  

Lock-up      

EXTRAS 

From 


Pages  

Page  Forms- 


Pages  Size  . 


Unblocked 
Blocked 

X 


.  Per  Pp. 
.  %  Mis. 


ENGRAVINGS 
Quantity 


HALF  -  TONE- 

Size 


LINE  - 

X 


-DRAWINGS 


In.    8  . 


STOCK  -  INSIDE 


Ours 

Supplied 


Reams  |      Sheets Size  —  Weight 


STOCK.  -  COV£.t 


#Mis. 
"  Ours 
Supplied 


Cutting 


INSIDE—  PRESSWORK.  ■ 


CYLINDERS 


<S  Mis-- 


No.  Pp. 
in  Forms 


Paper  Size 

of  1  ■  i Tin 


M  Imp. 
Each 


Make-ready 


Running 


Total  Hr. 
per  Form 


Grand 
lojjl 


Slipsheeting  —  Bronzing  — Extras 


Extra,  for  Color,  Fine  Black  and  Heavy  Forms  INK- 
COVER—  PRESSWORK  


CYLINDERS 


Extra  for  Color.  Fine  Black  and  Heavy  Forms  INK 

Slipsheeting  —  Bronzing  —Extras  ■-■■  ■ 

BINDING-  Ours —  Outside      (See  over  for  details)- 

RULING.     CUTTING  AND  MISC.      ITEMS 

PACKING-  CASING  —  CASES  -  CARTAGE  . 


Order  placed  with  . 
Reason : 


.  Totals 
.  Quote 


[  -ST     Etop  —  look—  -think—  tod  »ak  yourself;    Have  I  provided  for  »nd  Included  everything? 

All  estimates  must  b«  careful Ij  obeoked  tor  errors  of  omission  or  oitoulitioo.     Never  "Uke  tehtQoe.' 


Form  Fl.     Estimate 


COSTS   IN   A  PRINTING  SHOP 


225 


When  this  estimate  has  been  made  and  checked  a  proposition  is  made  to  the  prospective  customer  on  a  standard  size 
letter  sheet  (8|xll  in.)  ruled  and  printed  as  in  Form  F2. 


We  herewith  submit  our  proposition  for  furnishing  you  the  following: 


Description  or  < 

Name 

Quantity 

No.  Pages 

Trimmed  Size  ' 

Composition 

Original  Designs 
Engravings 

Electrotypes 

Paper  Stock 

Where  paper  baa  to  be  special!;  nude,  i 
or  deducted 

Is  uiiiir:i.iu'l  that  the  conditions  of  (be  paper  trade,  which  wo  a 

re  compelled  to  UhMpt.  shall  gov 

rn,  and  that  umr-ruus  vt  under-runs  will  bo  accepted  and  charged  for 

Presswork 

Binding 
I 

Price 

Terms:  Strictly 

Net 

Quoted  subject  to  immediate  acceptance 

owing  to  possible  fluctuations  in  cost  ot  material  and  labor 

Delivery 
F.O.B. 

New  York  City 

Subject  to  strikes,  accidents  and  utherc 

It  is  understood  that  five  per  cent   uve 

ause*  beyond  our  oootr-l 

Stipulated  quantity  will  be  accepted  and  paid  for 

When  referring 

to  this  bid, 

kindly  mention 

number 

Any  sad  all  obanges  from  original  copy 
All  pUto*  ind  paper  held  in  stuck  at  ow 

r  any  variation  of  original  specilioitloaB  necessitating  additional 
ner'a  risk  and  aubieot  to  a  storage  charge  for  all  time  In  ozoess  of 

work  or  expense  will  be  charged 
one  year,  unless  governed  by  a 

peoial  agreement 

Form  F2.  Proposition 


BINDING  DETAILS 

E.OLDING  -  Hand                              _                       &_ 

-®. 

& 

GATHERING-"""!'.                                                     @ 

INSERTING     .                                                          @ 

STITCHING-  tiand.          Q  j  .,      .  .                       ® 

SILK- Floss- Cord                                                        @ 

COLLATING- Tipping— Pasting                              @ 

TRIMMING                                                                         @ 

PADDING                                                                           @ 

PUNCHING-  Perforaling                                            @ 

STAMPING-  Numbering                                            O 

STRINGING                                                                  _    @ 

Form  Flo.    Binding  Details.     (On  back  of  Form  Fl.) 


The  Order  Ticket,  Form  F3,  page  226,  is  a  large  envelope  of 
heavy  paper,  printed  on  the  front  in  red  ink.  The  back  of  the 
envelope  has  blanks  printed  in  large  type  for  the  time  record 
of  different  stages  of  the  job  in  the  composing  room,  press 
rooms  and  bindery.  The  one  for  the  composing  room  is 
here  given.  The  blanks  for  pressroom-cylinder  and  press- 
room-platen contain  date  and  time  columns  for  On  Press 
and  Final  Delivery  to  Bindery  and  Shipping  Department; 
and  the  blank  for  the  Bindery  has  columns  for  Final 
Sheets  Received  and  Final  Delivery  to  Shipping  Depart- 
ment and  Mail.  The  Remarks  column  in  each  of  these 
blanks  is  5  in.  wide,  and  each  heading  after  the  word  Remarks 
contains  the  following  instruction:  Give  any  pertinent 
information  concerning  the  order  which  may  be  of  use 
in  billing,  etc.,  noting  particularly  delays  or  customer's 
variations  from  original  specifications  necessitating  extra 
work. 


226 


BOOKKEEPING  AND   COST  ACCOUNTING 


Is*  x  "X  inJUess  margin) 
No 


_Salesman_ 


ORDER  TICKET 


_  Former  No. 
^Entered 


191_ 


For 

Address  _ 
Quantity— 


-Customer's  Order.  Ncv_ 


Description 


COMPOSITION:         Type  page,  size. 


_picas  wide  by_ 


.picas  deep.    Type  style  text_ 


-Type  style,  cover_ 


Proof  to  - 


Promised_for_ 


-Sentout^ 


^Returned- 


Overlays  ^C0S 


Imposition . 


Keep  standing  ^es 


Our  imprint  Y,L*3 


ELECTROTYPING    from. 
ENGRAVINGS    from 


unblocked  | 


electrotypes- 


DRAWINGS     from. 


—halftones  *'f»corporaU'd  in  plate 
(  electrotyped 


PAPER  STOCK:       J^~     Do  not  deliver  more  than  specified  quantity 


<eq.No 


Cutting  Instructions 


Weight 


Description 


Ordered  from 


No. Pes.      Size 


PRESSWORK: 


B3P"      Be  sure  the  paper  stock  is  in  before  going  to  press,  and  do  not. 
under  any  circumstances,  run  more  than  specified  quantity. 


OVERLAYS 


Paper  allow,  each  Form 


Produce  Net  No. 


Imps,  each  Form 


—  Imposition — Kind  of  Form,  etc. 


Slip 

Sheeting 


To  print  on 


Cyl.—  Plat.-Auto 


Cyl.  —  Plat.-Auto 


Cyl.—  Plat.-Auto 


Bronzing  ^eos 


BINDING: 


Ruling  by_ 


Outside  by  _ 
Ours 


-Quantity Trimmed. Size  _ 

-.Numbering  by 


jc inches,  consisting  of 

ink,  from to PADS  OF._ 


(       and     \ 
-pages   )  withoutj 


_each.   Perforate  *•■ 
No 


SHIPPING:                    g^"*    Two  samples  of  complete  order  must  be  enclosed  in  this  ticket 
Complete  order  to  be  delivered. not  later  than  191 

'Pq  Express  j    Prepaid 


Address  - 


Freight 
Wagon 


Collect 


Special  Instructions:- 
Marked  for 


Date  of  final  Delivery  . 


_191_ 


Estimate:  No. 


Yes- 


Billed  Under  Date  . 


_"Board  No.. 


Form  F3.    Order  Ticket    (Envelope) 


ORDER  RECORD 
COMPOSING  ROOM  Jp°* 

DATE 

TIME 

REMARKS: 

J  Out 
1st  Proof          )  |n 

S  Out 

2nd  Proof       i 

(  In 

3rd  Proof        \  °u' 

1  In 
(  Out 
4th  Proof         < 

I  '" 

I  Out 

5th  Proof         i 

j  In 
Final  O.K.           In 

\  Out 
Foundry          ■< 

j  In 

To  Press        \P","!a 

(Cylinder 

A  M 
P.M 

AH 
P.M. 

A.M 
P.M 

AM 
P.M 

A.M. 

P.M. 

A.M 
P.M 



A.M. 
P.M. 

"am. 

P.M. 

— 

A.M. 
P.M. 

A.M. 
P.M. 

A.M. 
P.M. 

A.M. 

P.M. 

.A.M. 
P.M. 

A.M. 

P.M. 

Signed 

A.M 

P.M. 

Foreman 

Form  F3a.    Order  Record,  Composing  Room. 
Envelope  F3 


Back  of 


COSTS   IN   A   PRINTING   SHOP 


227 


(&';<•  sXxsX  in.) 

DAY  FORCE 

Day 

In 

Morning 

Out 
Lunch 

In 

Lunch 

*Out 
Final  or 
Supper 

In 
Supper 

Out 

Final 

Office 
Use 

Fri. 

Sat. 

\ 

Sun. 

Mon. 

Tues. 

Wed. 

Thu. 

*  If  you  are  not  working  overtime  stamp  your  Final  Out 
in  this  column 

No  credit  will  be  given  on  Pay  Roll  unless  your  time  is 
properly  stamped 

(See  Over) 

Form  F4.     Weekly   Time  Ticket  for   Clock    Record. 
Day  Force 

(Another  blank  is  used  for  the  night  force.) 

The  reverse  side  of  this  card  contains  rules  and  instruc- 
tions, some  of  which  are  the  following: 

Cards  must  be  stamped  at  actual  time  you  are  ready  for  work 
and  nol  on  arrival.  At  quitting  time  the  cards  must  be  stamped 
when  you  stop  work  and  not  when  you  are  ready  to  leave  the 
building. 

Cards  must  be  left  in  the  racks  at  all  times. 

Should  your  card  be  lost,  report  immediately  to  foreman. 


PROOF  ROOM  Ticket 

Reading 

Revising 

0£ 

M 
> 

Copy- 
Holding 

Miscellaneous 
For  Work 

Unclassified 

For  Office 
Use 

- 

>  1 

- 

> 

< 

a 

01 

> 

- 
< 

(S 

Ch'ge 
able 

Non- 
Ch'ge- 

able 

Co 
pr 

• 

unmsfur  Order 
•cede  these  colut 
.ces  for  time  clo. 

ins 
fcs 

and  Customer  or  Publication 
,  and  they  are  followed  by 
tauipsi 

Form  F5.     Proof  Room  Ticket 

Form  P5  and  P7  are  the  same  size  as  Form  P6.  Under 
Working  Time  the  hour  and  minute  figures  are  printed,  from 
8  a.m.  to  5.30  p.m.  on  the  Day  Ticket,  and  from  5.30  p.m. 
to  2  a.m.  on  the  Day  Overtime  Ticket. 


Size  of  Ticket  IQ\  x  9%  in.) 

COMPOSITION  TICKET 

Name 

0WU  X  In  tb« 

column  tbat  «bu-8  tbo  kit 

dof  work  1  'in'  mi  1  draw  a  im.-  thwusu  time  term 

tl.r  page 

t 

o 

Correc- 

Altera- 

• 

lor  Office 

Size 

tions 

5  » 

a. 
r 

3 

-3 
- 

^ 

Fur  Reglaloi  or 

M 

T3 

0 
c 

0 

-r 

M 
U 
0 

J 

Corrections  on  fron, 

NuB- 

Adv. 

lion 

Z 

c 
• 

s    =    = 

r 

z 

SojobL,  Handling 

Cb're- 

Chf* 

X 

-1 

- 

sp  j 

2.J 

Cute,  Etc. 

KtLb 

8.00 

"  1 

8.12 

0.2 

8.18 

0.3 

2 

8.24 

0.1 

8.30 

O.S 

T 

a 

J) 

o 

8.36 

0.6 

0 

.  a-5- 

1 

3 

3 

i 

3 

1 

8.42 

8.18 

0.7 

0.8 

», 
-'.- 

SK  = 

I 

I 

Jf 

: 

~ 

J 

8.:">l 
9.00 

0.9 
1.0 

- 

a 

« 

■y 

-, 

-^ 

4 

B.UU 

I.I 

1 

ft 

2 

9 

1 

f 

J 

9.12 
9.18 
9.21 

1.2 
1.3 

1.4 

s5^ 
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i 

i 

3 

§ 

I 

3 

3 

S.30 
9.3C 
9.42 

1.5 
1.6 
1  7 

^ 

.■; 

S, 

B 

■fi 

•S 

■n 

9.48 

1.8 

*- 

| 

J 

S 

2 

3 

1 

§ 

9.61 
10.00 

1.9 
2.0 

~ 

3  •  " 

| 

1 

U 

10.00 
10.12 
10.18 
10.24 

2.1 
2.2 
2.3 
2.4 

o 

10.30 

2.5 

* 

10.30 

2.6 

10.42 

2.7 

10.48 

2.8 

10.54 

2.9 

11.00 

3.0 

11.06 

3.1 

11.12 

3.2 

11.18 

3.3 

11.24 

3.4 

11.30 

3.5 

11.36 

3.6 

11.42 

3.7 

11.48 

3.8 

11.51 

3.9 

12.00 

4.0 

(and 

30  oh,  until  S.JO  or  y.- 

ttr$.) 

If  you  have  taken  up  a  partly  set  adv.  or  have  one  unfinished 
at  close  of  day,  or  have  someone  helping  you.  state  the  frac- 
tion you  set,  which  with  the  other  fraction  makes  the  whole 

Totals 

1 

Gross 

adv.    Thus,  "Size  of  adv.  *4  page"     "Propoportion  you  set, 

.'6  P*Se"  This  leaves  the  remaining  %  to  be  reported  elsewhere. 

Working  j  8.00  A.M.     12.15  P.M.  ~  .  v   Use  Overtime  Ticket 
Hours     (    1.00  P.M.    5.30  P.M.    UA^        for  all  Overtime 

Please  read  and  observe  instructions  on  reverse  side 

(A  similar  ticket,  but  printed  in  red,  is  used  for  overtime,  the  times  running  from 
ff.50  P.M.  to  2  A.M.  or  S.S  hrs.) 

Form  F6.     Composition  Ticket 


LINOTYPE  No.          Daily  Record.    Name                     Hours 

Use  an  X  Id  tbe  column  that  shows  tbe 

tiad  of  work  done  and  draw  a  line  through  time  ooroBL,  the  page 

If  aorreotlng  some- 

For  Office 

a 
S 

0 

Cor. 

onBolau'a  original 
oom posit  ion, 

Alt. 

OP 

a  = 

Picas 
Wide 

Total  Ems 

Ch'ge 

Non- 

O 

indicate  wti  ■ .  t> 

able 

Ch'ge 

able 

8.00 

P 

3 

8.0(1 

0.1 

§ 

8.12 

0.2 

s  n 

S.1S 

0.3 

S 

9 

S.2I 

111 

5*8-2 

1 

„ 

8.30 

0.5 

•s 

8.36 

0.6 

-    A, 

s 

8.12 

0.7 

#«-=  t. 

a 

8.48 

0.8 

►i 

■§ 

8.54 

0.9 

B&& 

u 

a 

9.00 

1.0 

i 

9 

9.00 

1.1 

'.-.- 

£• 

9.12 

1.2 

£     5 

9.18 

1.3 

a 

3 

9.24 

1.4 

w 

s 

9.30 

1.5 

& 

9.36 

1,6 

s 

9.42 

1.7 

o 

9.18 
9.54 
10.00 
10.06 
10.12 
10.18 

1.8 
1.9 
2.0 
2.1 
2.2 
2.3 

For  Office 
Usa 

1^ 

Totals 

Text 

Totals 

Border 

Gross 

Form  17.     Linotype  Daily  Record 


228 


BOOKKEEPING  AND   COST  ACCOUNTING 


iSize  «>i  x  »«  ii 

''        CYLINC 

Dlock  No 

ER  PRESS  TICKET 

Press 
No. 
Use  X  for  Auto 

Date                                  HI 

natic  and  for  Make-Ready  and  Running:   Draw  a  line  through  the 

Order 
No. 

A 
U 
T 
O 

Customer  or 
Publication 

Folios  of 

Form 

and 

No.  pp. 

Color 
Ink 
and 

Quantity 

M 

R 
Y 

R 

I 
N 

Miscellaneous 
Smash,  Camp,  on 

(Headings  Continued) 

time  across  ihe  page  (up  to"For  Office  Use"coIurnn)  in  taking  up  each  new  order. 

H 

Counter 
at  Start 

Counter 
at  Finish 

Net  Run 

For  Office  Use 

Ch'ge- 
able 

Non. 

Chee- 

ablc 

Laid 
Off 

5.30 
5.36 
6.42 
5.18 
5.51 
6.10 
6.06 

0.1 
0.2 
0.3 
0.1 
0.5 
0.6 

Form  FS.     Cylinder  Press  Ticket 

This  ticket  is  for  day  overtime,  first  shift,  9.5  hours  from 
5.30  p.m.  to  3  a.m.  The  reverse  side  of  the  ticket  contains 
Instructions  to  Foreman  and  Pressmen,  as  follows  (somewhat 
abridged) : 

Machines  must  be  started  at  the  ring  of  the  starting  gong, 
and  shall  not  stop  until  the  gong  rings  for  stopping. 

Each  press  has  its  own  ticket  each  working  day,  whether  run- 
ning or  not.  For  overtime  or  night  work,  only  the  presses  that 
run  use  tickets. 

A  pressman  running  two  machines  repeats  his  name  and  time 
on  each  ticket,  and  each  ticket  shows  only  the  actual  time  of  the 
feeder.  If  more  than  one  feeder  is  employed,  give  names  of 
each  and  their  time. 

In  starting  work  draw  a  line  through  the  commencing  time 
straight  across  the  ticket  up  to,  but  not  through  the  column 
"  For  Office  Use."  In  changing  from  "  make  ready  "  to  "  run- 
ning," put  an  X  in  the  column  to  indicate  the  operation  and 
draw  a  line  from  and  through  the  column  straight  across  and  up 
to  column  "  For  Office  Use."  In  changing  to  a  new  order,  draw  a 
line  clear  across  the  ticket  and  up  to  column  "  For  Office  Use." 

If  no  help  is  employed  on  a  machine  write  "  Laid  Off  "  in 
Miscellaneous  column  and  indicate  the  length  of  time. 

Waiting  for  form  is  not  to  be  charged  to  an  order  unless  the 
foreman  so  instructs. 

When  a  form  is  lifted,  say  so  and  give  the  reason,  and  when 
reinstated  start  the  counter  where  you  left  off  and  indicate  that 
it  is  a  "  lifted  form." 

Delays  or  interferences  that  seem  to  the  foreman  to  be  on 
account  of  customer  are  to  be  referred  each  day  to  the  office, 
and  if  chargeable,  the  word  "  charge  "  is  to  be  recorded,  and  such 
words  used  in  its  description  as  would  be  clear  to  the  customer 
if  so  billed.  If  there  is  a  smash,  or  cut  pulls  off,  mark  page  num- 
ber and  always  pin  a  proof  of  the  page  to  the  ticket. 

Where  extra  help  is  required,  such  as  slip-sheeters,  state  how 
many  were  employed  and  their  time. 

Make  out  your  ticket  as  completely  and  as  concisely  as  you 
know  how  and  upon  completion  of  each  individual  operation. 
Be  very  careful  that  every  entry  be  absolutely  correct,  and  be 
as  neat  as  you  can.  Do  not  wait  until  the  end  of  Ihe  day  and  have 
to  trust  to  your  memory.  If  you  are  in  doubt  as  to  the  method 
of  filling  in  this  ticket,  ask  your  foreman. 


A  similar  ticket,  85  Xl3  in.  in  a  different  color,  is  used  for 
day  overtime. 

The  back  of  Form  F9  contains  instructions,  some  of  which 
are  given  below,  also  a  "  Kind  of  Work  "  Index  and  a  wage- 
calculating  table  which  are  here  given  in  full.     (See  page  234.) 

This  ticket  is  for  payroll  purposes,  so  that  it  is  absolutely 
necessary  that  you  fill  in  the  headings  carefully,  giving  date, 
your  name  and  clock  number. 

Do  no  work  without  getting  an  order  number  to  charge  to. 

Be  careful,  particularly  if  you  are  a  pieceworker,  to  get  the 
exact  quantity  you  have  produced,  and  be  sure  you  have  the 
right  order  number  and  name,  the  number  that  properly  indicates 
the  kind  of  work  you  have  done,  the  correct  rate  per  hundred, 
and  the  correct  total  charge. 

All  your  time  tickets  must  be  deposited  at  quitting  time  in  the 
basket  provided  for  that  purpose.  Should  your  ticket  lie  lost, 
report  immediately  to  forewoman,  otherwise  you  can  not  receive 
credit  on  the  payroll  for  the  work  you  have  done. 

SCALE  OF  WAGES 
From   I   to  8  Hours — Basis  8  Hour  Day 


H 

lurs 

Fractions 

Rate 

per  Week 

1 

2 

3 

4 

5 

6 

7 

8 

.02 

.04 

*4 

4  00 

.08 

.16 

.25 

.33 

.41 

.50 

.58 

.66 

06 

4   50 

09 

.18 

.28 

.37 

.46 

.56 

.65 

.75 

.02 

.04 

.07 

5  00 

10 

.20 

.31 

.41 

.52 

.62 

.72 

.83 

.02 

.05 

07 

5.50 

.11 

.22 

.34 

.45 

.57 

68 

.80 

91 

.02 

.05 

.08- 

6.00 

12 

.25 

.37 

.50 

.62 

.75 

.87 

1   00 

.03 

06 

.09 

6.50 

.13 

.27 

.40 

.54 

.67 

.81 

.94 

1   08 

.03 

.06 

.10 

7.00 

.14 

.29 

.43 

.58 

.72 

.87 

1.02 

1.  16 

.03 

07 

.  10 

7.50 

.15 

.31 

.46 

.62 

.78 

93 

1.09 

1   25 

.03 

07 

.11 

8.00 

.16 

.33 

.50 

.66 

.83 

1.00 

1.  16 

1   33 

.04 

08 

.12 

8.50 

.17 

.35 

.53 

.70 

.88 

1.06 

1.23 

1.41 

.04 

06 

.13 

9.00 

.18 

.37 

.56 

.75 

.93 

1.  12 

1    31 

1    50 

.04 

09 

.14 

9.50 

.19 

.39 

.59 

.79 

.98 

1.18 

1.38 

1    58 

.04 

09 

.14 

10  00 

.20 

.41 

.62 

.83 

1    04 

1.25 

1.45 

1    66 

.05 

10 

.15 

10  50 

.21 

.43 

.65 

.87 

1.09 

1.31 

1.53 

1    75 

.05 

10 

.16 

11.00 

.22 

.45 

.68 

.91 

1.14 

1.37 

1.60 

1    83 

.05 

11 

.17 

11.50 

.23 

.47 

.71 

.95 

1.19 

1.43 

1    67 

1.9.1 

.05 

II 

.17 

12  00 

.25 

.50 

.75 

1.00 

1.25 

1    50 

1    75 

2  00 

.06 

12 

.18 

12  50 

.26 

.52 

.78 

1.04 

1.30 

1    56 

1.82 

2.08 

.06 

.13 

.19 

13  00 

.27 

.54 

.81 

1.08 

1.35 

1    62 

1 .89 

2   16 

.06 

.13 

.20> 

13.50 

.28 

.56 

.84 

1.12 

1.40 

1  .68 

1    96 

2  25 

.07 

.14 

.21 

14.00 

.29 

.58 

.87 

1  .  16 

1.45 

1.75 

2  04 

2  33 

.07 

.  14 

.21 

14.50 

.30 

60 

.90 

1  .20 

1.51 

1  .81 

2    II 

2  41 

.07 

.15 

.22 

15.00 

.31 

.62 

93 

1    25 

1.56 

1    87 

2.18 

2.50 

.07 

.15 

.23 

15.50 

.32 

.64 

.96 

1.29 

1   61 

1.93 

2.26 

2.56 

.08 

16 

.24 

16.00 

.33 

.66 

1.00 

1.33 

1    66 

2.00 

2.33 

2  66 

.08 

.16 

25 

16.50 

.34 

.68 

1    03 

1    37 

1    71 

2  06 

2.40 

2   75 

.08 

.17 

.25 

17  00 

.35 

.70 

1  .06 

1.41 

1.7/ 

2    12 

2  47 

2  83 

.08 

.17 

26 

17.50 

.36 

.72 

1  .09 

1.45 

1.82 

2    IP 

2.55 

2  91 

.09 

.16 

.27 

18  00 

.37 

.75 

1.12 

1  .50 

1.87 

2.25 

2.62 

3  00 

.09 

.18 

.28 

18.50 

.38 

.77 

1.15 

1.54 

1.92 

2  31 

2  69 

3.08 

.09 

.19 

.28 

19  00 

.39 

.79 

1.18 

1.58 

1  .97 

2.37 

2   77 

3    16 

.09 

19 

29 

19  50 

40 

.81 

1.21 

1.62 

2  03 

2.43 

2.84 

3  25 

.10 

.20 

30 

20  00 

.41 

.83 

1.25 

1.66 

2.08 

2.50 

2.91 

3.33 

.10 

.20 

31 

20.50 

.42 

.85 

1  .28 

1  .70 

2.13 

2   56 

2.98 

3.41 

.10 

.21 

.32 

21.00 

.43 

.87 

1.31 

1.75 

2.18 

2  62 

3  06 

3.50 

.10 

.21 

.32 

21.50 

.44 

.89 

1    34 

1.79 

2.23 

2  68 

3.13 

3.58 

.11 

.22 

.33 

22  00 

.45 

.91 

1.37 

1.83 

2  29 

2.75 

3.20 

3.66 

.11 

.22 

.34 

22.50 

.46 

.93 

1  .40 

1    87 

2.34 

2.81 

3.28 

3.75 

.11 

.23 

.35 

23.00 

.47 

.95 

1.43 

1.91 

2.39 

2  87 

3.35 

3.83 

.11 

.23 

.35 

23   50 

.48 

.97 

1.46 

1.95 

2.44 

2.93 

3.42 

3.91 

.12 

.24 

.36 

24  00 

.50 

1    00 

1.50 

2.00 

2.50 

3.00 

3.50 

4.00 

.12 

.25 

.37 

24   50 

.51 

1.02 

1    53 

2.04 

2.55 

3.06 

3.57 

4.08 

.12 

.25 

.38 

25.00 

.52 

1  .04 

1    56 

2.08 

2.60 

3    12 

3.64 

4.16 

i   .13 

.26 

.39 

(Note  on  Form  F9.     Bindery  Daily  Time  Ticket.) 


COSTS   IX   A  PRINTING   SHOP 


229 


[Size  *Ji  x  **  in.) 

Bindery  Daily  Time  Ticket  - 
Employee 


191. 

Clock  No., 


"Kind  of  Work"  Column  must  be  filled  in,  using  numbers 
Etcfj  time  Jtn  chin''  [obi  or  kin  1  of  work  dra<r  t  line  ttitMUgh  the  time  across  tbc  p.a-r.     On!?  plee*  workers 


Customer 
or  Publication 


No.  Folds 
or  Sections 


Kind  of 
Work 

(SeeOvor) 


[Heading*  Continued) 

(Per  WeekS - 
Wages    ]PerHourS_ 


Hours 

(Time  Work  Only) 


listed  on  back  of  sheet.       Take  separate  ticket  for  overtime 

need  figure  out  their  time,  or  *a;cs,  In  column  headed  "Time  Work."    Time  worker?  need  nut  do  t 


Quantity 


Piece  Work 


Rate 

per 
100 


Time  Work 


Rate  per 


When  you  use 
in  Order  No. 


When  there  St 
no  Order  No. 


Form  F9.    Bindery  Daily  Time  Ticket 


ORDER  NO. 

BILL  ISSUED 

COMPOSITION: 

@~ 

emi    8  pt 

ems  10  pt. 

. Quarter-page  advs . . 

Small  advs. . 

hrs.  Hand  Alterations 

hrs.  Machine  Alterations 

ELECTROS: 

Full-page  advs. , 

Half- page  advs . . 

Quarter-page  a  J  vs. 

.Small  advs.  _ . 

PRESSWORK: 

32* page  form . 

_16-page  form 

8- page  form 

4-page  form . . 

8-page  cover 

BINDING: 

BULK  POSTAGE'  (See  over  for  Items) 

-@- 

..a. 

-@- 

..&.. 
-®~ 
..©- 

-@_ 
..©.. 
.@- 
_©_. 

_@~ 

_©.. 
-&- 







1 

Form  F23.    Record  for  Itemized  Bill 

(The  Details  are  on  the  Cost  Ticket,  Form  22,  page  236) 


RECAPITULATION  OF 
LIGHT  AND  POWER 

DISTRIBUTION  TO  DEPARTMENTS 

Departments 

Location 

LIGHT 

POWER 

K.W. 

Value 

K.W. 

Value 

Cylinder 
Press 

Basement 
Elevator 

2d   Floor 

3d  Floor 

4th  Floor 

Total 

The  ot 
Comp. 

OJice, 

ier  departments  in 
Room,  Linotypes,  J 
Shipping,  Stock,  Bo 

this  distrib 
)b  Comp.  pi 
ling  Machi 

utio7i  rucor 
atens.  Bine 
if,  Mainten 



iare 

cry, 

ance 

Form  F18a.     Recapitulation  of  Light  and  Power 
Distribution.     (See  F18,  page  234) 


MAINTENANCE  Ticket 

Carpenter  —  Elcctrican —  Machinist    Dated  _ 


[Size  *}i  *  ,JYi  in.) 
.191       Name 


Clock  No, 


Hrs. 


Describe  in  the  proper  column  the  kind  of  work  done  and  draw  a  line  through  time  across  the  parre 
Give  details  as  to  the  department  for  which  the  work  was  done  and  material  used. 


MAINTENANCE  -  REPAIRS,  ETC. 


NEW  WORK  .  ORIGINAL  CONSTRUCTION 


(Working  hours  8  A.N 
Another  blank 


8.00 
8.0C 
8.1S 
8.1S 
8.21 
8.30 
to  '2.' 
is  use 


0.2 
0.3 
0.4 
0.5 
P.N 
ifor 


and  1  P.M.  to  S.S0  P.3C 
vertime) 


Form  F10.     Maintenance   Ticket 


230 


BOOKKEEPING   AND   POST   ACCOUNTING 


DAILY   COMPOSING    ROOM    RETURNS— CHARGEABLE 
HAND  COMPOSTION 

ORDER                            NAME 
NUMBER             IF  A  PUBLICATION 
GIVE  TITLE 

COMPOSITION 

OFFICE  CORRECTIONS 

AU  I  HOR  S  AL  I'KUA  PON 

First 

Stone 

Press 

First 

Stone 

Press 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

( Large  sheet  2s  x  20  tns.  with  twu  sets  of 

headings,  one  on  each  half  of  the  sheet. 

130  ruled  lines  below  the  headings, 

in  blocks  of  o  followed   by  rulimj  for  total.) 

{Readinrjs  Continued ) 

Date                                          day                                       191 

HANDLING 

MAKE-UP 

LOCK-UP 

L.U.  FDY. 

REGISTER 

ENCR. 

BANK 

Reg. 

Over 

Re3. 

Over 

I'.v  !. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg.       j     Over 

Reg. 

Over 

1 



Form  Fll.     Daily  Composing  Room  Returns 


(Sire  *2  >t  *2J£  in.  including 

COMPOSITION 

RETURNS 

Description 

n^tP  FntPrpH                                                   1Q1 

Indicate  Second  Shift                               BOOK  ROOM                                    Cross  ^o^not'apply6'*"118                                  JOB  ROOM 

Date 
191 

Name  of 
Compositor 

Totals  of 
Reports 

Com- 
position 

Corrections 

Alterations 

Handling 

Make- Up 

Lock-Up 

Lock-Up 
Foundry 

Register 

Engraver 

Misc. 

First 

Stone 

Press 

First 

Stone 

Press 

No. 

Hours 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Rag. 

Over 

Reg. 

Over 

Reg. 

Over 

Rag. 

Over 

Reg. 

Ovtr 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Brt.  FwJ. 

i*s  rule 

1 

in 

S3, 

in 

T 

,»• 

C8 

>f 

nv 

eT 

1    1_ 

■ 

1 

■ 

'Totals 

*  See  over  for  Recapitulation  of  Totals 

ih. 

QrderNo                                              MACHINE  WORK  ONLY.     NO  HAND  WORK. 

LINOTYPE 

MONOTYPE 

Totals 

cf 
Reports 

KEYBOARD 

CASTER 

Date  ^ . 

Totals  of  Rep's 

Composition 

Correct  Ions 

A  Iterations 

Body 

Ems 
Exclude  Alt. 

Date 

191 

Operator 

Compos  It  Ion 

Alterations 

Ems 
Eiolude  AIL 

Operator 

191 

No. 

Hours 

R*g. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Reg. 

Over 

Brt.  Fwd. 

Brt.  Fwd 

Coin  mi 
under 

s  same  as 
Keyboard 

Totals 

| 

Totals 

Totals 

MttSfB"                                          RECAPITULATION  OF  TOTALS 

BOOK-JOB 

Cross  out  whichever  healing  does 
not  apply 

LINOTYPE 

MONOTYPE 

KEYBOARDS 

CASTERS 

Hours 
Regular 

Hours 
Overtime 

Hours 
Regular 

Hours 
Overtime 

Total  Ems 

Hours 

RepuJar 

Hours 
Overtime 

Total  Ems 

Hours  ' 
Regular 

Hours 
Overtime 

Total  Ems 

Composition 

Alterations 

Form  F12.     Composition  Returns,  and  Recapitulation 


COSTS  IN   A   PRINTING  SHOP 


231 


(ShttC  ti  *  IS  in/or 
Loose-leaf  binder,  ruled  on 
both  widest  25  lines  to  a  pane.) 

COMPOSING 

ROOM    PAYROLL   FOR  WEEK 

Employee 

Friday 

Saturday 

Monday 

Tuesday 

Cijwge 

[ha 

CllfcTgC 

Cborga 

Nun 

Chut* 

Moo 
Chug* 

Chirjc 

Charge 

Amounts  brought  forward 

1 

— 1 — 

{Headings  Continued)                                                                                                       Sheet  No 

1 

ENDING                                                                     191 

I 

Wednesday 

Thursday 

Total 
Time 

Rate 

Per 

Week 

Total 
Amount 

Paid  on 

Account 

Amount 
Due 

Remarks 

Overtime 

Obaxga 

Nod 

Charge 

Non 

Form  F13.     Composing  Room  Payroll 


PRESS  RETURNS 

Name 

Description 

DATE 

Press  No. 

A 

U 
T 

o 

Folios 

of 
Form 

and 
No.  pp. 

INK 

If  i::..  k 

leatfu  vacant 
QUANTITY 

COUNTER 
AT  START 

COUNTER 
AT  FINISH 

NET  RUN 

MISCELLANEOUS 

SuuiBh.  Cmp.  od  Purm,  etc 

Plat. 

Cyl. 

Size  of  Sheet'  l!%  x 

/.'  in-. 

■  ''  nth 

1  tinea 

beneath  the' heaiti 

1 -:<,;{ 

b„ 

RECAPITULATION                                                                                  Totals  | 

Cylinders 
Platens 

IMPRESSIONS 

MAKE-READY 

RUNNING 

SPECIAL 

Regular 

Over 

Double 

Regular 

Over 

Double 

Enter  time  for  Two-color  Cylinders 
and  Autopress  in  red  ink. 

Sheet  No. 

{Headings  continued) 

REPORTS 

Date 

Cylinders 

Two-Color 

Platens 

Order  No 

- 

TIME 

CYLINDERS 

PLATENS 

Make-Ready 

Running 

Make-Ready 

Running 

Ro-ular 

R  Over 

Ni-bt 

N  0«er 

Regular 

ROver 

NUjht 

NOvcr 

I..  -.il:tr 

Over 

Hiyilar 

Over 

- 

Form  F14.    Press  Returns 


232 


BOOKKEEPING  AND   COST  ACCOUNTING 


Sheet  f^H  x  'J  in.  for  loose  lea/binder  Printed  and  rnhd  on  one  si  le  unit/ 

RECAPITULATION  CYLINDER  AND  PLATEN  PRESS  RECORDS - 


Month  of  . 


19_ 


FIRST  SHIFT 


Press 
No. 


TOTAL 
IMPRESSIONS 


CHARGEABLE  HOURS 


Make -Ready 


Running 


NON- 
CHARGEABLE 


Laid 
Oft 


No.  of 
Forms 


t'nd'  r  "i''r-:>s  .\<>-"  are  printed  the  figures: 


1  to  i^/or  cylinder  presses,  with  a  ruled  tine 


i    ■   •■■uii    It.  kkHikjs  are  »si  I  for  Second  Shift 


an  I  I  or  Platens,  The  "Press"  column  under 


I'l  it>.  ns  contains  ?J  tetters  A  to  Z  tvtth  a 


rule  t  tine  fur  each. 


On  the  same  sheet,  below  the  totals  of  the 


Columns  there  are  printed  the  foflmvin-j 


instructions  and  additional  forms. 


INSTRUCTIONS 

Overtime  to  be  entered  at  actual  time.  The  total  hours  recorded  for  the  month  should  be  equal  to  the  regular  working  hours  of  the  first  shift,  multiplied  by  the 

total  number  of  presses,  plus  the  overtime  hours  of  the  first  shift,  plus  the  hours  represented  by  the  presses  running  on  the  second  shift.  The  presses  NOT  RUN- 

NING on  the  second  shift  on  which  no  labor  is  employed  are  not  considered  in  this  record.  Observe  carefully  the  distinction  between  "NON  CHARGEABLE" 

and  "LAID  OFF"  time.  Include  under  the  classification  "NON-CHARGEABLE"  the  time  of  those  presses  that  are  standing  temporarily  for  any  reason  that.is 

NOT  CHARGEABLE  TO  CUSTOMER.  Include  under  the  "LAID  OFF"  classification  the  time  of  those  presses  on  the  FIRST  SHIFT  ONLY  that  are  standing 

being  either  out  of  commission  on  account  of  repairs,  or  because  of  no  work,  THERE  BEING  NO  LABOR.  EMELOYED  ON,  THEM..         .Indicate  in  the  column. 
provided  for  that  purpose  the  number  of  COMPLETED  forms'produced.. 


TO  ASCERTAIN 

ITEMIZED  TOTAL  COST    Obtain  figures  from  PROFIT  &  LOSS  STATEMENT 
ITEMIZED  COST  PER  CHARGEABLE  HOUR- Use  TOTAL  CHARGEABLE  HOURS 

as  a  divisor,  dividing  total  cost  of  each  item. 
ITEMIZED  COST  PER  THOUSAND  IMPRESSIONS-Use  TOTAL  IMPRESSIONS  as 

a  divisor,  dividing  total  cost  of  each  item., 


BLACK 


INKS 


COLORED 


Itemized  Total  Cost 

Itemized  Cost 

per 

Chargeable  Hour 

Itemized  jCost 
per 

1000  Impressions 

Cylinders 

Platens 

Cylinders 

Platens 

Cylinders 

Platens 

Depreciation 

"Light 
payroll 

Repairs 

TOTALS 

Cylinders 
Platens 
Totals 


Average 
Cost  per  lb. 


Total  Cost 


Average 
Cost  per  lb, 


SUMMARY 


CYLINDERS 


PLATENS 


Total  Hours 

Per  cent 

of  Total 

100.0 

Chargeable 

Non -Chargeable 

Laid  Off 

Grand  Totals 

Total  Impressions 

Average  Impressions 

per  Running  Hour 


Per  cent 
of  Total 


Avorage  Impressions  per 

Haul  Including  Make-reaffly_ 

Average  Impressions 

pec  Running  Uouc 

on  Automatics         _ 


Form  Flo.     Recapitulation  Cylinder  and  Platen  Press  Records 


PAY  VOUCHER 

Fill  in  this  voucher  carefully  and  accurately 
as  it  is  used  as  your  statement  of  wages  due. 
No  wages  can  be  paid  without  it. 

__                                                                                                                             Clock  No. 
Name...     No, 

Department _. __ g** 

For  week  ending                                                                                              191 

PAY  RECEIPT 

f-.                                         Fill  in  this  receipt  carefully  and  accurately 
£;                                        giving  totals  of  time  and  wages  as  shown 
td                                            oo^our  pay  voucher. 

fcd                               TEAR  OFF  AND  RETAIN  THIS  PAY  RECEIPT 
*                               AND  PRESENT  TO  PAYMASTER  WHEN  YOU 
>                              RECEIVE  YOUR  ENVELOPE,  AS  IT  IS  ACCEPT- 
2*                               ED  AS  YOUR  RECEIPT  (SUBJECT  TO  CORRECT- 
w                               ION  IN  THE  EVENT  OF  ERROR)  FOR  WAGES  RE- 
2                              CEIVED.    NO  WAGES  CAN  BE  PAID  WITHOUT  IT. 

HOURS  WORKED 

(Indlestoil  in  hours  and  Unths) 

z                                             SUMMARY  OF  TIME  AND  WAGES 

til 

Regular 

Overtime 

Special 

$ 

lit                   Special  Time 

0                                 Totals . 

5                                          Received  the  amo 

unt  stated  above,  subject  to 

correction  in  the  event  of  error. 
fe                                                                                                                                     Clock 

Total  Hours 

Checked  by 

rotal  Amount  Due  $ 

NiKht 

Form  FIG.     Pay  Voucher  and  Pay  Receipt 


COSTS  IN   A  PRINTING  SHOP 


233 


_    .      „     [Sheet,  »  X  «Jf  inohea) 

l«1 

m'\rr»E'D"v 

p 

Escdptio 

liliMI 

PIECE  WORK 

Stitchins 

Folding 

Gathering 

Inserting 

Mailing 

Covering 

lip 
Strip 

Silk 

Sewing 

H 

;t 

2'l 

.1.1 

58 

J6 

40-41 

42 

Total  Cost 

@ 

& 

@ 

@ 

® 

@ 

@ 

(3 

@ 

@ 

@ 

@ 

@ 

@ 

@ 

»% 

£  j. 

tl 

Jfa 

IS       |  (Siic 

of  Sheet,  > 

<  x  /-'!<;  ine 

hes  so  mile 

i  lines,  eeerii  Jiftli  lint 

heavy  rul 

no) 

3  C-r 

m5; 

El 

- 

'Headings  Continued) 

SHpm  TM 

RETURNS                                           Bindine  Make 

-Up: 

TIME  WORK 

Stitching 

Folding 

Gathering 

Inserting 

Covering 

Mailing 

Stamp 

Tip 
Strip 

Silk 
Sew 

Carry 

Pad 

64-65 

14 

15-16 

28 

68 

29 

30.51-32 

33 

34-35 

36 

37-38-39 

58 

59-63 

43-44 

40-41 

42 

S5 

67 

66 

Quantity 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Cost 

Coat 

Cost 

E 

O 
l3, 

5 

| 

c_ 

* 

3 

J4. 

' .' 

0 

> 

-i. 

;j; 

ft 

l| 

I 

. 

MACHINE  WORK 

Cut-trim 

Folding 

Cleveland 
Jobber 

Covering 

Chain 

Stitching 

Gathering 

Stitching 

Oatberiag 

St  lU'foitis-Covcr.og 

Smash 

23 

1-2-3 

4-5-6 

7-13 

69-71 

L7-18 

72-74 

19-21 

22 

27 

Total  Cost 

Cost 

Cost 

Quant. 

Cost 

Quant. 

Cost 

Quant. 

Cost 

Quant. 

Cost 

Total  Cost 

Quant. 

Cost 

Quant. 

75-77 

Cost 

Cost 

Cost 

Cost! 

« 

•2*  u 

-ill 

£*a  S 

£$a 

"rj8"! 

3&s 

I  i* 

4&s 

ir 

■5  s  '. 

?5d 

J-K-S, 

a  -2  3 

Form  F17.    Bindery  Returns 


234 


BOOKKEEPING  AND   COST  ACCOUNTING 


Form  F17  contains  also  an  index  of  the  "  Kind  of  Work 
costs.     The  items  of  the  recapitulation  are  as  below: 


and  a  "Recapitulation"  with  columns  for  quantities  and 


Cutting 

1  Cutting  flat  stock. 

2  Trimming  pamphlets,  etc. 

3  Seybold  trimmer. 

4  Seybold  trimmer  helper. 

5  Jogging. 

6  Carrying. 

Machine  Folding: 

7  Operator. 

8  Helper. 

9  Box  tending. 

10  Hand  feeding. 

11  Refolding. 

12  Bundling  machine. 

13  Carrying  from  folders. 

Cleveland  Jobber 

69  Operator. 

70  Feeder. 

71  Box  tending  and  carrying. 

Wire  Stitching 

14  Operator — Piece. 
14  Operator — Time. 
1.5  Taking  off. 

16  Carrying  or  jogging. 

Machine  Covering 

17  Operator. 

18  Helper. 

Chain  Stitching 

72  Operator. 

73  Taking  off. 

74  Carrying  or  Jogging. 

Machine  Gathering — Stitching 
49  Operator. 

20  Helper. 

21  Carrying. 


RECAPITULATION 

Machine 

Machine  Gathering — Stitch — Cover 


75 
76 

77 

Operator. 

Helper. 

Carrying. 

Other  Machine  Work 

22 
23 
24 

25 
26 

27 

Smashing. 

Perforating. 

Punching. 

Round  cornering. 

Numbering. 

Eyeletting. 

Hand  Work 

28 
28 
68 

Folding — Piece. 
Folding — Time . 
Refolding. 

Gathering 

29 
29 
30 
31 
32 

Gat  hering — Piece . 
Gathering — Time . 
Laying  up. 
Jogging. 
Carrying. 

Inserting 

33 
33 
34 
35 

Inserting — Piece. 
Inserting — Time. 
Jogging. 
Carrying. 

Covering 
36  Covering — Piece. 

36  Covering — Time. 

37  Carrying. 

38  Re-covering. 

39  Taking  off  covers. 


Miscellaneous  Hand  Work 

40  Tipping. 

41  Stripping. 

42  Silk  sewing. 

43  Stamping. 

44  Postage  stamping. 

45  Tabbing. 

46  Taking  apart. 

47  Gumming. 

48  Counting. 

49  Interleaving. 

50  Stringing. 

51  Reinforcing. 

52  Tissuing. 

53  Metal  clips. 

54  Paper  seals. 

55  Carrying. 

56  Errands. 

57  Wrapping  and  tying. 

(not  mailing). 
67  Padding. 
78  Cancelling. 


Mailing 

58  Wrapping. 

59  Inclosing — turn  in  flap. 

60  Inclosing — sealing  flap. 

61  Tying. 

62  Counting. 

63  Helping. 


Press  Room  Charges 

64  Smut  sheeting. 

65  Bronzing. 

66  Jogging  flat  sheets. 


Total  Wages. 


Form  F17o.     Reverse  of  F17.     Machine  Work  in  Bindery 


{Size  >s%  x  ft 

in 

ELECTRIC 
rom 

LIGHT  AND  POWER  METER  READINGS 
191                  Tn 

1Q1 

Taken 

by 

LIGHT 

POWER 

Meiers 

and 

Location 

Department 

Readings 

Department  Charged 

to,  with  Per  cent. 

to  each 

Department  Charged 

to,  with  Per  cent, 

to  each 

Readings 

Center 

West 

Wall 

3d  Floor 

Comp.  Room 

Cylinder  P.  R. 

Platens 

Bindery 

Office 

Maintenance 

Press  Room                 10  ^ 

Previous  Reading 

Consumed 

Office                           3% 

(Similar  record 

\for  meters  in  eleven  other  locations) 

Form  F1S.     Electric  Light  and  Power  Meter  Readings 


COSTS  IN  A  PRINTING  SHOP 


235 


(Sheet  U  x  is  in  ruled  on 

Ki.'Sw&toSS&S                                                    PRESS  ROOM  PAYROLL 

No 

Employee 

Fri. 

Sat. 

Mon. 

Tues. 

Wed. 

Thur. 

Amounts  brought  forward 

{Headings  Continued ) 

WEEK  ENDING                                                                                           191 

Total 
Time 

Rate 

Per 
Week 

Total 
Amount 

Paid  on 
Account 

Amount 
Due 

Remarks 

Overtime 

Form  F19.      Press  Room  Payroll 


Page  M  x  in  in.  SH  ruled  lined 

SALES  FOR  THE  MONTH  OF                                                          191 

Order 
No. 

NAME                                                                                              DESCRIPTION 

>> 

Total 
Charge 

Composing 
Room  and 
Monotypes 

Amounts  brought  forward 

1! 1 — 

Headings  Continued 

Linotypes 

Cylinders 

Two  Color 
Cylinders 

Job  Department 

Bindery 

Paper 

Stock 

Publication 

PostaRe,  etc. 

Metal 

True 
Cost 

Comp.  Room 

Platens 

Autopress 

_ 

1 

i 

Form  F20.     Sales  for  the  Month 


Ratine  b 

SALES  LEDGER 

Name 

Credit  Limit 

Address 

Date 
191 

Order 
No. 

Quantity 

DESCRIPTION 

(Loose  leaf  Ledger  Sheet 

fi  x  12%  in.Ruled  M  lines 

to  the  page) 

Stud  No. 

Folio 

Debits 

Credits 

Folio 

DESCRIPTION 

Date 
191 

Form  F21.    Sales  Ledger 


236 


BOOKKEEPING  AND   COST  ACCOUNTING 


u 

0 

Ize  »%  x  II 

rder  1  in 

For 

tf  in.) 

ered                                              Rilled 

COST  TICKET 

Salesman 

S.B.  Page 

Order  No. 

Rilled 

Former  Nos 
Estimate:  N 

\  M                                                                                       ^!le  rtiVerse  "/this  *-'"St  Ticket 
Address                                                                r,ll,^,,,„« ,,  i^iij,,,,  n,>*,'r/..//.)n 

o  -  Yes 

r\          <u»,                                                                         .cith  4-  rnleil  tin 

Description                                                         fnT  Pall€r  slock  L 

3  and  a  blank 

nd  other  items* 

as  brlmr. 

Customer's  Order  > 
No.  Pages                ( 

,o. 

The  headings  art 

and        r--^.,^. 

(.without  *"* 

Trimmed  Size 

X 

Total  Ems  Set        }  Lino,ype 

Caster  Record  if  Mono.  (  Monotypi 

Hours 

Kit  ha 

<3 

COST 

BILLED 

M 

L 

0 

0 

a 

2< 

Composition 

Overtime 

Alterations 

ELECTROS  -  ENGRAVINGS  -  DRAWINGS 

Overtime 

Monotype -Key 

Overtime 

Date 

From 

Description 

Price 

Casters 

0 

CLi 

0 

u 

en 

Ed 

- 

H- 

0 
V. 

Overtime 

Alterations  £e* 
Cnet- 

Overttme 

Electros 

^Engravings 

LinotvDe 

Overtime 
Alterations 

PAPER  STOCK  -   Some,'* 

Lj 

Dale 

From         j   Rms. 

Shts. 

Size               Wl. 

Description 

Price 

OS 
Cd 

y 

I- 

y 

- 
/. 

- 

Id 

s 

g 
>• 

X 
-J 

a  1 
V. 

gg 

1) 

1 

c 

Cover 

Gross  Impressio 
Hours,  Regular 

H 

Slipsheeting  or 
•    k   Black 

INK 

Composition 

Overtime 

Alterations 

Overtime 

PI  a  tens- Forms 

MISCELLANEOUS  ITEMS 

Gross  Impressic 
Hours,  Regular 

Slipsheeting  or  Bronzing 

1 

,_t    Blaok 

POSTAGE.  CHARGEABLE  EXPRESS  OK  FREIGHT,  CARTAGE,  ETC. 

description  u^fl 

Cutting 

DELIVERIES  -  (ENTER  RECEIPTS  EACH  DAY) 

Dale 

Quantity 

Date 

Quantity 

Date 

Quantity 

Net  P-L 
Stamps,  Bulk  Postage  or  Chargeable 

— 

Total 

SPECIAL  NOTE: 

Order  No. 

Form  F22.     Cost  Ticket  and  Billing  Record 


Bill  Issued 

BILLING  DESCRIPTION 

ITEMS 

TOTALS 

\*oo 

■  >u,i                                        uoihUi  ";■>(! 

»AV               »*!S 

■8»qs 

saiH 

iiji  'j  1 

ajca 

>so3 

□oqdu  *s.*(j 

UIOJJ 

a»B<] 

^IDOXS  >IHdVd 

Form  F22a.     Billing  Description  (Reverse  of  F22k 


CHAPTER    XXI 

REPORTS  TO  STOCKHOLDERS;  EDUCATION  OF  ACCOUNTANTS;  COST  OF  IDLENESS; 

MISCELLANEOUS  FORMS;  BIBLIOGRAPHY 


REPORTS   TO    STOCKHOLDERS   OF   LARGE 
CORPORATIONS 

The  forms  in  which  printed  annual  reports  01  large  corpo- 
rations are  made  by  the  president  or  the  directors  to  the 
stockholders  are  illustrated  below.  Particular  attention 
is  called  to  the  statements  concerning  maintenance,  depre- 
ciation and  reconstruction  in  the  report  of  the  American 
Telegraph  and  Telephone  Company. 

The  report  of  the  General  Electric  Company  is  notable 
as  an  extreme  example  of  "writing  off"  expenses  of  all  kinds 
and  charging  them  to  "cost  of  sales."  The  company  ha 
regularly  paid  S  per  cent  dividends  for  several  years,  in 
both  good  and  bad  times.  If  it  had  paid  10  per  cent  some 
of  the  stockholders  might  have  been  gratified,  but  the 
result  would  have  been  a  much  poorer  annual  report  for 
the  year  1916.  The  "sound  and  conservative"  policy  of 
"writing  off"  has  been  fully  justified  by  the  splendid  con- 
dition of  its  finances  to-day.  "The  company  has  no  note 
payable." 

It  is  Surplus  rather  than  Capital  Stock  that  earns  Dividends. 
The  reason  usually  given  for  the  accumulation  of  a  large 
surplus  instead  of  paying  large  dividends  to  stockholders 
is  that  it  is  a  necessary  and  proper  provision  against  the 
vicissitudes  of  business,  fluctuation  in  demand,  depression 
in  trade,  obsolescence  both  of  plant  and  of  product,  and 
for  the  need  of  new  capital  to  ensure  the  steady  growth  of 
the  business  which  is  needed  to  supply  increasing  demand. 
Another  good  reason  is  that  it  provides  a  fund  which  may 
be  used  to  purchase  the  latest  improvements  in  labor-saving 
machinery,  the  use  of  which  will  earn  large  profits.  A  con- 
cern with  a  million  dollars  capital,  all  invested  in  plant, 
stock  in  trade,  bills  and  accounts  receivable,  with  no  surplus, 
may  have  all  it  can  do  to  earn  the  bare  interest  on  its  in- 
vestment, but  if  it  had  a  quarter  of  a  million  surplus  it  might 
invest  that  in  improved  machines  which  would  earn  20  per 
cent  per  annum  on  their  cost.  A  statement  of  earnings  might 
then  show: 


Old  Plant  $1,000,000  @  6% 

New  Machinery       250,000  @  20% 

Total 


$60,000 
50,000 

$110,000 


"It  is  the  straphangers  that  pay  the  dividends,"  the 
president  of  a  street  railway  corporation  is  reported  to 
have  said. 

Extract  from  the  Report  of  the  Directors  of  American 
Telephone  and  Telegraph  Company 

New  York,  March  12,  1917 

Bell  Telephone  System  in  United  States 

comparison  of  revenue  and  expenses,  1915  and  1916 

(All  Duplications  including  Interest,  Dividends  and  other 
Payments  to  American  Telephone  and  Telegraph 
Company  by  Associated   Companies  are  Excluded.) 


which  is  11  per  cent  on  the  capital  stock,  or  8.8  per  cent 
on  the  sum  of  capital  and  surplus. 


1915 

1916 

Increase 

Exchange  Revenues 
Toll  Revenues 
Miscellaneous  Revenues 

$169,155,944 

62,929,980 

2,338,431 

$188,888,149 

72.971,668 

2,715,463 

$19,732,205 

10.041.688 

377,032 

Total  Operating  Revenues 

$234,424,355 

$264,575,280 

$30,150,925 

Depreciation 
Current  Maintenance 
Traffic  Expenses 
Commercial  Expenses 
General    and    Miscellaneous 
Expenses 

$  44,586,841 
31,171,272 
45,785,432 
23,583,274 

11,049,191 

$  49,631,966 
34,923,549 
53,748,707 
25,698,913 

11,902,470 

$  5,045,125 
3,752,277 
7,963,275 
2,115,639 

853,279 

Total  Operating  Expenses 

$156,176,010 

$175,905,605 

$19,729,595 

Net-operating  Revenues 

$  78,248,345 

$     88,669,675 

$10,421,330 

Uncollectible  Revenues 
Taxes 

$      1,703,210 
13,001,903 

$      1,480.502 
14,916,448 

$     222,708* 
1,914,545 

Operating  Income 
Net  Non-operating  Revenues 

$  63,543,232 
6,022,932 

$  72,272,725 
7,080,384 

8,729,493 
1,057,452 

Total  Gross  Income 

$  69,566,164 

$  79,353,109 

$  9.786,945 

Rent  and  Miscellaneous  De- 
ductions 
Interest  Deductions 

$     3,384,407 
18,095,643 

$     3,735,470 
18,378,931 

$      351,063 
283,288 

Total  Deductions 

$  21,480,050 

$  22,114,401 

$      634,351 

Balance  Net  Income 
Deduct  Dividends 

$  48,086,114 
32,897,065 

$   57,238,708 
35,160,119 

$     9,152,594 
2,263,054 

Surplus  Earnings 

$   15.189,049 

$  22,078.589 

$  6,889,540 

;  Decrease. 


237 


238 


BOOKKEEPING  AND   COST  ACCOUNTING 


Combined  Balance  Sheets,  1915  and  1916 

(Duplications  Excluded) 


Dec   31,  1915 

Dec.  31,  1916 

Increase 

Assets: 

Telephone  Plant 

$    880,068,520 

$    946,293,248 

$  66.224,728 

Supplies,  Tools,  etc. 

15,951,582 

24,032,099 

8,080.517 

Receivables 

43,518.625 

66,029,580 

22,510.955 

Cash 

45.716.330 

80,692,829 

34,976,499 

Stocks  and  Bonds 

72.652.646 

81.815,476 

9,162,830 

Total 

$1,057,907,703 

$1,198,863,232 

$140,955,529 

Liabilities: 

Capital  Stock 

$    440,711,200 

$    463,101,569 

$  22.390,369 

Funded  Debts 

353,236,464 

422,586,617 

69,350,153 

Bills  Payable 

2,404,920 

3,738,451 

1.333,531 

Accounts  Payable 

29,039,127 

38,280.436 

9.241,309 

Total  Outstanding 

Obligations 

$    825,391,711 

$    927,707,073 

$102,315,362 

Employees'  Benefit 

Fund 

9,114,329 

9,151.000 

36,671 

Surplus  and  Reserves 

223.401,663 

262,005,159 

38.603,496 

Total 

$1,057,907,703 

$1,198,863,232 

$140,955,529 

!                      1 

Maintenance,  Depreciation  and  Reconstruction 

During  the  year  884,906,000  was  applied  out  of  revenue 
to  current  maintenance  and  depreciation,  an  increase  of 
§8,846,000  as  compared  with  1915.  Current  maintenance 
increased  83,752,000,  averaging  3.9  per  cent  on  the  average 
plant  in  service,  which  compares  with  3.7  per  cent  in 
1915. 

The  provision  for  depreciation  of  plant  during  the  year 
was  S49,983,000,  an  average  of  5.6  per  cent  of  the  cost  of 
plant  and  an  increase  over  1915  of  85,094,300. 

Plant  which  originally  cost  about  844,000,000,  but  which 
had  reached  its  limit  of  serviceable  life,  was  removed  and 
replaced  by  new  and  improved  construction,  or  sold,  as 
compared  with  S42,000,000  in  1915.  After  deducting  this 
amount  less  salvage  from  the  provision  for  depreciation, 
the  balance,  about  825,000,000,  increases  the  reserves  for 
such  depreciation  and  obsolescence,  which  must  be  provided 
for  out  of  current  expenses,  but  cannot  be  currently  deter- 
mined or  expended.  As  stated  in  last  year's  report,  it  is  the 
continuing  policy  of  the  Bell  System  to  provide  out  of 
earnings  each  year  amounts  as  represent  the  estimated  wear 
and  tear,  obsolescence  and  inadequacy  of  plant  accruing 
that  year,  so  that  when  any  plant  comes  to  be  retired  suf- 
ficient reserve  has  been  gradually  acquired  to  meet  the  loss 
of  capital  due  to  such  retirement.     This  is  the  sound  and 


conservative  policy  for  the  protection  and  guaranty  of  the 
future  of  the  plant,  and  it  is  the  only  way  by  which  telephone 
users  pay  for  the  wear  of  the  plant  incident  to  or  concurrent 
with  their  use,  instead  of  passing  this  cost  on  to  the  future 
users.  Lack  of  recognition  of  this  principle  has  caused 
many  failures  in  all  industries,  and  particularly  in  the  tele- 
phone business.  This  principle  is  now  generally  accepted 
and  the  practice  is  firmly  established  by  the  accounting 
rules  of  the  Interstate  Commerce  Commission  and  the  various 
state  commissions. 

Extracts  from  the  Report  of  the  General  Electric  Co. 
April  16,  1917 


Value  of  Orders  received  for  electrical  machinery  and 

supplies  in  1916 

$167,169,058 

00 

(50%  greater  than  for  the  largest  previous  year,  1913) 

Amount  of  sales  billed 

134,242,289 

69 

Less  cost  of  goods  sold,  including  all  operating,  main- 

tenance and  depreciation  charges 

118,948,198 

58 

Net  Profit  on  Sales 

15,294.091 

41 

Income  from  other  sources 

3,866,881 

95 

Total  net  income 

19,160,973 

36 

Less  Interest  on  debenture  bonds                  571,444.96 

Dividends  on  Stock                                        8, 1 2 1 ,646  00 

8,693,090 

96 

Carried  to  Surplus 

10.467.882 

40 

Surplus  at  January  1,  1916 

23,692,871 

03 

Surplus  at  December  31,  1916 

$34,160,753 

43 

Capital  Stock  issued 

101,512,500 

00 

Number  of  employees  in  the  factories  and  offices  of  the 

Company  and  subsidiary  companies,  about  79,000 

The  Company  has  followed  its  customary  practice  in 
writing  off  against  income  its  total  expenditures  during 
1916  for  patents,  applications  for  and  licenses  under  patents 
and  other  outlays  relating  thereto,  amounting  to  S891,SS0.30. 
The  patent  account  is  carried  at  81.00  as  in  previous 
years. 

The  Company  has  no  note  payable,  nor  is  there  any 
paper  outstanding  bearing  its  indorsement. 


On  January  31,  1893,  the  book  value  of  your  manufac- 
turing plants  was 

During  the  24  fiscal  years  to  December  31,   1916,   addi- 
tional expenditures  have  been  made  aggregating 

$  3,958,528 
88,634,909 

21 
55 

Total 
Written  off  during  the  twenty-four  years 

92,593,437 
62,688.673 

76 

44 

Book  value  of  all  plants  at  December  31,  1916 

$29,904,764 

32 

Net  Book  Value 
Jan.  1,  1916 

Additions 
During  Year 

Written  Off 

Net  Book  Value 
Dec.  31,  1916 

Real  Estate  and  Buildings 

Machinery 

Patterns 

Furniture  and  Fixtures 

$20,038,337 
9,524,992 

1 
1 

31 
21 
00 
00 

$1,860,729 

5,732,187 

113,888 

1,121,450 

25 
13 
06 
36 

$2,452,875 

4.798,608 

113,888 

1.121,450 

44 
14 
06 
36 

$19,446,191 

10,458,571 

1 

1 

12 
20 
00 
00 

Total 

$29,563,331 

52 

$8,828,254 

80 

$8,486,822 

00 

$29,904,764 

32 

REPORTS  TO  STOCKHOLDERS;   EDUCATION  OF  ACCOUNTANTS,  ETC. 


239 


Assets 


Patents,  Franchises  and  Good  Will 

$                 1 

00 

Cash: 

12.167,706 

92 

Stocks,  Bonds  and  Other  Securities 

$33,773,678 

08 

Notes  and  Accounts  Receivable 

26,816,297 

28 

Advances  to  Subsidiary  Companies 

4,739,818 

68 

Installation  Work  in  Progress 

4,196,020 

35 

69.525,814 

39 

Merchandise  at  Factories 

43,963,220 

49 

At    district    offices,    on    consignment,    in 

transit,  etc. 

7.197,418 

98 

51,160,639 

17 

120,686,453 

56 

Manufacturing  Plants 

29,904.764 

32 

Real  Estate,  other  than  Manufacturing  Plants 

863,187 

70 

Furniture  and  Appliances  (other  than  in  factories) 

1 

00 

30,767,953 

02 

Liabilities 
Debenture  Bonds 

$163,622,114 

50 

$12,047,500 

00 

Accounts  Payable 

$7,874,872 

89 

Accrued  Taxes 

1,149,256 

36 

Accrued  Interest  on  Debentures 

196.518 

68 

Dividend  payable  January  15,  1917 

2,030,154 

00 

11,250,801 
4.650,559 

93 

Advance  Payments  on  Contracts 

14 

Capital  Stock  Issued 

101,512,500 

00 

Surplus 

34,160,753 

43 

$163,622,114 

50 

Extract  from   the  Report  of  the  Westinghouse  Electric 
and  Manufacturing  Co. 

Report  of  the  Auditors 

New  York,  May  8,  1917. 
To  the  Board  of  Directors, 

Westinghouse  Electric  &  Manufacturing  Company, 
New  York. 

We  have  made  an  audit,  for  the  year  ended  March  31, 
1917,  of  the  books  and  accounts  of  the  Westinghouse  Electric 
&  Manufacturing  Company,  and  the  following  proprietary 
companies,  viz.:  Westinghouse  Lamp  Company,  Westing- 
house Lamp  Corporation,  H.  W.  McCandless  &  Company, 
The  Bryant  Electric  Company,  The  Perkins  Electric  Switch 
Manufacturing  Company,  R.  D.  Nuttall  Company,  Westing- 
house Electric  Export  Company  and  Westinghouse  Elec- 
tric &  Manufacturing  Company  of  Texas. 

We  have  verified  the  Stocks  and  Bonds  owned,  the  Cash 
and  the  Notes  Receivable,  by  count  or  by  proper  certi- 
ficates from  the  depositaries. 

The  investments  in  Stocks  and  Bonds  of  other  Companies 
are  conservatively  valued  on  appraisals  made  by  us  from 
market  quotations  and  financial  reports  and  other  available 
data  as  to  operating  results. 

We  have  examined  the  Accounts  Receivable  and  in  our 
opinion  the  reserves  created  therefor  are  sufficient  to  cover 
probable  losses. 

The  inventories  of  Raw  Materials  and  Supplies,  Finished 
Parts,  Completed  Apparatus,  and  Work  in  Progress  of  the 
subsidiary  companies  were  taken  under  our  general  super- 
vision and  valued  at  cost  or  less.  No  inventories  were  taken 
at  the  Works  of  the  Westinghouse  Electric  &  Manufacturing 
Company   because   the   demands   upon  the   Company  for 


further   certify  that 
harmony  therewith. 


production  were  so  great  that 
it  was  not  considered  desirable 
to  close  the  works  for  this 
purpose.  We  have,  however, 
carefully  reviewed  the  book 
accounts  and,  based  on  such 
examination  and  past  experi- 
ence (the  book  records  under 
the  comprehensive  system  of 
accounting  followed  having 
been  found  by  such  experience 
to  be  reliable)  together  with 
the  reserves  created  to  provide 
for  possible  shortages,  we  be- 
lieve that  the  inventory  values 
are  conservatively  stated,  and 
WE  HEREBY  CERTIFY 
that,  in  our  opinion,  the  ac- 
companying Consolidated  Gen- 
eral Balance  Sheet  of  March 
31,  1917,  and  Consolidated 
Statement  of  Income  and 
Profit  &  Loss  for  the  year  so 
ended  are  correct;  and  we 
the    books    of  the  Companies  are  in 

(Signed)   Haskins  &  Sells, 

Certified  Public  Accountants. 


Westinghouse  Electric  &  Manufacturing  Company  and 
its  Proprietary  Companies  in  the  Uxited  States 

(Except  New  England  Westinghouse  Company) 
Consolidated  General  Balance  Sheet 

Assets 

March  31,  1917 
Property  and  Plant: 

Factory  Plants — Real  Estate,  Buildings,  Equip- 
ment, etc.  $22.701,1 10.02 


Investments: 

Stocks,  Bonds,  Debentures,  etc.,  of  other  Com- 
panies $18,156,577  43 


Current  Assets: 
Cash 

Notes  Receivable 
Accounts  Receivable 

Total  Current  Assets 


$12,625,574  67 

4,935,511.06 

32,757,631.71 

50,318,717.44 


Working  and  Trading  Assets: 

Raw  Materials  and  Supplies,  Finished  Parts 
and  Machines,  Work  in  Progress,  Goods  on 
Consignment    and    Apparatus    with    Cus- 


tomers, Inventoried  at  Cost  or  less 

Other  Assets: 

Patents,  Charters  and  Franchises 
Insurance,  Taxes  etc.,  paid  in  advance 

Total  Other  Assets 

Total 


$31,934,594.79 


$4,286,206.51 
145,604  80 

$4,431,811.31 

$127,542,810  99 


240 


BOOKKEEPING  AND   COST  ACCOUNTING 


Liabilities 

Capital  Stock: 

Preferred 
Common 

Total  Capital  Stock 

Collateral  and  Long  Term  Notes 

Real  Estate  Purchase  Money  Mortgage 


March  31,  1917 

$  3,998,700  00 
70,813,950.00 

$  74,812,650  00 

$  2,803,750.00 

$180,000  00 


Current  Liabilities: 

Notes  Payable — Bank  Loans  $15,100,000.00 

Accounts  Payable  5,988, 1 80 . 82 
Interest,  Taxes,  Royalties  etc.,  Accrued,  not 

due  2,470,164.29 

Dividend  on  Preferred  Stock,  payable  in  April  69,977  .  25 

Dividend  on  Common  Stock,  payable  in  April  1 ,239,244 .  I  3 
Unpaid  Debenture  Certificates,  Bonds,  Notes 

and  Interest  and  Dividends  149,254.32 


Total  Current  Liabilities 


$25,016,820.81 


Reserve: 


Against  Inventories,  Notes  and  Accounts  Re- 
ceivable, etc.  $     6,624,291.52 


Profit  and  Loss — Surplus 
Total 


$18,105,298.66 


$127,542,810  99 


Consolidated  Statement  of  Income  and  Profit  and  Loss 
for  the  Year  Ended  March  31,  1917 

Gross  Earnings: 

Sales  Billed  $89,539,442.09 

Cost  of  Sales: 

Factory  Cost,  including  all  Ex- 
penditures for  Patterns,  Dies 
New  Small  Tools  and  Other 
Betterments  and  Extensions: 
also  depreciations  of  Prop- 
erty and  Plant,  Inventory 
Adjustments  and  all  Selling, 
Administration,  General  and 
Development  Expenses  and 
all  Taxes  72,077,751.53 

Net  Manufacturing  Profit  $17,461,690.56 

Other  Income: 

Interest  and  Discount,  Divi- 
dends, Royalties,  etc.  1,386,546.57 

Gross  Income  from  all  Sources  $18,848,237.  13 

Deductions  from  Income: 

Interest  on  Bonds  and  Deben- 
tures, Notes,  etc.  768,348.30 

Net  Income  Available  for  Dividends 

and  Other  Purposes  $  1 8,079,888 .  83 

Profit  and  Loss  Credits: 

Profit      and      Loss — Surplus, 

March  31,  1916  9,246,707.03 

Gross  Surplus  $27,326,595.86 

Profit  and  Loss  Charges: 

Dividends  on  Preferred  Capital 

Stock  $    279,909.00 

Dividends  on  Common  Capital 

Stock  3,750,000  02 

Appropriations  to  Reserve  Ac- 
count 5,000,000.00 
Miscellaneous  ( Net)  191,388.  18 


9,221,297  20 


Surplus,  per  Balance  Sheet 


$18,105,298  66 


COLLEGE   EDUCATION   IN   ACCOUNTING  * 

1.  What  kind  of  accounting  is  meant.  The  accounting 
here  treated  is  the  work  of  the  expert  accountant,  who  aids 
materially  in  the  management  of  business  by  furnishing 
financial  statements  and  data,  after  the  work  of  the  entry 
clerk  is  complete. 

2.  The  education  of  a  person  desiring  to  become  an  account- 
ant. The  accountant  should  receive  just  as  ample  an  edu- 
cation as  the  manager.  This  is  to  enable  him  to  execute 
his  duties  with  the  greatest  sureness  and  effectiveness. 
His  education  must  be  accomplished  in  a  much  shorter 
time  and  through  different  routes  from  that  of  experience. 

3.  The  necessity  for  such  an  education.  The  public  and 
high  schools  furnish  no  education  of  help  to  the  accountant, 
as  the  commercial  courses  in  these  schools  only  give  instruc- 
tion in  typewriting  and  bookkeeping,  in  which  he  is  not 
interested.  Little  knowledge  is  obtained  in  the  lower  schools 
that  is  of  real  value  to  the  student,  and  it  is  the  author's 
opinion  that  the  curricula  of  American  schools  should  be 
greatly  changed,  so  as  to  really  furnish  a  practical  instruction. 

4.  It  should  be  a  college  education.  As  the  accountant 
must  be  able  to  cope  with  the  mature  mind  of  the  management 
of  the  firm,  it  is  necessary  for  him  to  have  a  mature  educa- 
tion, and  this  can  only  be  received  in  a  college. f 

5.  The  methods  of  teaching  the  subject.  The  greatest  diffi- 
culty is  to  make  the  courses  as  practical  as  they  will  be 
found  in  actual  business.  The  author  suggests  a  method 
similar  to  the  clinic  service  of  the  doctor.  He  suggests 
letting  the  student  work  under  guidance  on  the  books  of 
charitable  institutions  and  small  business  concerns.  The 
progress  would  be  much  greater  and  the  knowledge  obtained 
more  profound. 

6.  The  qualifications  of  the  stude7it.  Before  beginning  the 
study  of  accounting,  the  student  should  possess  a  thorough 
general  education  which  will  enable  him  to  understand  the 
use  of  technical  terms  and  fully  grasp  the  instruction  offered 
him.  Accounting  can  not  be  fruitfully  taught  before  the 
third  year  of  a  collegiate  education. 

7.  The  postgraduate  course  seems  better.  The  postgraduate 
course  seems  more  adequate  to  prepare  a  man  for  this  work 
as  only  a  graduate  possesses  that  knowledge  of  the  world 
so  lacking  in  the  college  man. 

The  subdivisions  of  the  courses  in  accounting  in  general 
may  be  enumerated  as  follows:  Philosophy  of  accounts; 
practical  accounting;  accounting  procedure;  accounting  sys- 
tems; simple  accounting  problems;  advanced  accounting 
problems;  auditing;  advanced  auditing;  private  auditing; 
accountants'  reports;  corporation  finance;  accountancy  of 
investments;  and  cost  accounting. 

*  Extracts  from  a  paper  by  John  G.  Geijsbeek,  presented  at  the 
Second  Pan-American  Scientific  Congress,  December,  1915.  Bureau 
of  Education  Bulletin,  1916,  No.  25,  "Commercial  Education,"  p.  58. 
See  also  the  Proceedings  of  the  Congress,  Section  IV,  Part  1, 
page  532. 

fThis  is  too  broad  a  statement.  The  education  obtained  in 
American  colleges  is  often  anything  but  "  mature,"  and  the  "mature 
mind  of  the  management  "  commonly  comes  from  an  education  in 
the  "  college  of  hard  knocks." 


REPORTS  TO  STOCKHOLDERS;   EDUCATION  OF  ACCOUNTANTS,  ETC. 


241 


TECHNICAL  EXPERIENCE  NECESSARY  TO  THE 
ACCOUNTANT 

Even  in  those  engineering  concerns  which  have  installed  much 
up-to-date  machinery  and  which  are  well  on  the  road  in  improved 
methods  of  production  there  does  not  seem  to  be  sufficient 
recognition  of  the  fact  that  the  status  of  practically  all  the  so- 
called  commercial  staff  must  be  regulated  by  the  shop  organi- 
zation. Systems,  routine  and  nomenclature  are  now  originated 
in  the  shop  instead  of  in  the  office.  This  surrender  of  control 
on  the  part  of  officials  like  the  accountant  is  not  an  easy  task. 
It  will  not  be  consummated  until  our  so-called  bookkeepers  in 
engineering  offices  are  made  to  qualify  for  this  task  by  having 
served  a  practical  course  in  the  productive  departments.  This 
work  should  consist  partly  of  manual  work  and  partly  in  the 
"works"  accounting  and  costing  departments.  This  technical 
experience  is  absolutely  necessary  to  the  commercial  accountant 
to  make  him  realize  that  his  work  must  harmonize  with  the  details 
of  the  productive  departments.  This  harmonious  working  is  a 
necessity  to  make  clear  statements  and  returns  which  interlock 
with  "  factory  "  returns.  Confusion  and  discrepancies  are 
sure  to  be  the  rule  if  this  is  not  accomplished,  and  patehed-up 
incongruous  statements  of  accounts  and  results  will  be  continu- 
ally presented  to  those  who  need  exact  statistics  for  their  guidance 
and  information. — From  an  article  on  "  The  Training  of  our 
Industrial  Forces,"  by  H.  F.  L.  Orcutt,  in  Engineering  (London), 
Sept.  7,  1917. 

AN  ENGLISH  VIEW  OF  COST  ACCOUNTING 

The  following  extracts  are  taken  from  an  editorial  in 
Engineering  (London)  Oct.  12,  1917.  From  these  it  appears 
that  British  manufacturers  are  still  in  the  dark  ages  of  cost 
accounting,  but  they  are  beginning  to  see  light. 

If  any  firm,  through  ignorance  of  the  principles  which  should 
govern  the  ascertainment  of  true  costs,  underestimates  the  cost 
of  competitive  work,  and  secures  an  order  through  incorrect 
calculations,  not  only  that  firm,  but  also  its  competitors,  must 
suffer 

While  trading  and  cost  accounts  should  be  made  interde- 
pendent there  should  also  be  a  clear  distinction  between  them.  .  .  . 
The  trading  accounts  indicate  what  has  happened  and  refer 
to  the  past,  whereas  cost  accounts  are  for  the  purpose  of  future 
estimate,  improvement  and  effort. 

The  interdependence  of  the  trading  and  cost  accounts  may  be 
sufficiently  effected  by  opening  records  in  the  trading  accounts 
to  represent  different  productions,  for  instance — separate  ac- 
counts for  each  process,  class  of  manufactures  or  contracts,  or 
in  the  case  of  similar  productions — if  convenient — accounts  for 
grouping  a  number  of  processes,  manufactures,  etc.  Arranging 
the  trading  accounts  in  this  manner  provides  a  check  assuring 
the  accuracy  of  the  cost  accounts,  and  shows  the  correct  value 
of  "work  in  progress"  (stock).* 

Apportionment  of  "Establishment  Expenses"  (On  cosf).f — 
This  item  presents  the  greatest  difficulty  in  arriving  at  "pro- 
duction costs."  Various  plans  have  been  tried,  each  no  doubt 
justified  by  certain  considerations  and  open  to  equally  sound 
objections.  The  "machine  rate"  occasionally  employed  in 
connection  with  engineering  work  is  a  case  in  point.  If  a  machine 
can  be  used  regularly  doing  work  of  constant  value,  a  machine 
rate  for  distributing  on-cost  may  be  satisfactory,  but  there  are 
few  producing  concerns  that  could  maintain  this  condition. 
Irregular  and  variable  employment  is  more  general,  and  in  these 

♦The  error  of  this  statement  is  shown   on  page  124. — W.  K. 

t"  Establishment,  charges  "  and  "on  cost"  are  terms  used  by 
English  writers  to  mean  the  same  thing  that  is  called  "  overhead  " 
or  "  burden  "  in  the  United  States. 


circumstances  any  attempt  to  apportion  the  total  establishment 
expenses  on  this  basis  must  take  into  account  many  elements  of 
uncertainty,  and  therefore  introduce  complications  too  cumber- 
some for  practical  purposes. 

"Permanent  Charges." —  Ground,  buildings,  plant  and 
machinery,  administration  and  permanent  staff,  advertising  and 
traveling.  Each  of  these  expense  items,  though  more  or  less  a 
standing  charge,  differs  in  each  department,  in  relation  to  out- 
put, according  to  the  conditions  of  production.  It  is  therefore 
more  convenient  to  slump  [lump?]  the  lot  and  decide  a  fixed  rate 
of  distribution  based  on  normal  output,  at  which  the  rate  alloca- 
tion should  be  made  in  proportion  to  production  units  for  any 

period. 

Fluctuating  Charges.— Building  repairs,  plant  repairs,  loose 
tools  upkeep,  indirect  labor,  stores  consumed  in  the  course  of 
manufacture,  and  material  scrapped,  should  increase  or  decrease 
in  the  same  ratio  as  the  production  units,  but  as  these  charges 
are  frequently  subject  to  irregular  variations,  they  should  be 
entirely  allocated  as  they  occur  (say  monthly)  so  that  they 
can  be  scanned  and  accounted  for  immediately  any  change  takes 
place.  It  does  not  follow  that  the  distinction  between  permanent 
charges  and  fluctuating  charges  makes  it  necessary  to  use  two 
rates  in  apportioning  on-cost.  One  rate,  made  up  of  a  fixed 
figure  (permanent  charge)  plus  a  changing  figure  (fluctuating 
charge)  is  sufficient- 
It  is  unfortunate  that  those  engaged  in  engineering  business 
have  not  arrived  at  something  approaching  general  agreement 
on  the  subject  of  estimating  and  costing.  To  a  large  extent 
this  has  been  due  to  conservatism  originating  with  the  man- 
agement and  transmitted  to  officials.  Practically  all  initiative 
has  been  suppressed,  consequently  little  progress  has  been  made 
in  the  direction  of  adopting  new  ideas.  The  manner  of  pre- 
paring cost  records  has,  to  a  large  extent,  become  obsolete,  and 
continues  to  vary  considerably  in  many  concerns.  The  financial 
accountant  in  his  view  of  costing  becomes  too  academic,  and  the 
technical  man  is  handicapped  by  inexperience.  Sir  Robert 
Hatfield,  in  the  discussion  on  Professor  Ripper's  paper  read 
before  the  Royal  Society  of  Arts,  remarked:  "As  to  costing  it 
was  necessary  to  specialize  upon  this  as  it  was  upon  engineering 
problems.  Many  firms  had  little  idea  what  their  products 
were  actually  costing." 

Too  frequently  there  is  a  tendency  to  follow  "the  law  of 
average" — a  polite  way  of  describing  "rule-of-thumb"— in 
costing.  .  .  .  The  misunderstanding  that  often  exists  respecting 
the  purpose  of  cost  accounting  leads  to  further  reliance  on  the 
"  law  of  average  "  .  .  .  whether  averaging  is  adopted  or  whether 
records  made  under  varying  conditions  are  used  to  estimate  the 
cost  of  repeat  jobs,  the  results  must  involve  considerable  specu- 
lation, and  in  any  case  procedure  of  this  kind  is  tantamount  to 
working  backwards.  Normal  cost  records  are  surely  a  more 
definite  basis,  for  upon  these  the  effect  of  any  change  of  circum- 
stances can  be  estimated  more  accurately. 

TO  WHAT  ACCOUNT  SHALL  THE  EXPENSE  OF 
IDLENESS  BE  CHARGED?* 

In  determining  the  cost  of  a  manufactured  article,  should 
we  include  all  the  expense  incurred  while  that  article  is  being 
manufactured,  or  should  we  include  only  those  expenses  which 
contribute  to  its  production? 

There  is  a  great  variety  of  opinion  as  to  what  the  "burden" 
charge  on  any  particular  work  should  be.  This  overhead  or 
"burden"  may  be  divided  into  two  parts: 

a.  That  which  is  incurred  through  simple  ownership  or  rental 
of  the  plant  and  keeping  it  ready  for  operation. 

*  Extracts  from  a  paper  on  "  Expenses  and^Costs,"  by  H.  L.  Gantt. 
Journal  of  the  Amer.  Society  of  Mechanical  Engineers,  Dec,  1917. 
(See  also  Idleness  Charts,  page  105.) 


242 


BOOKKEEPING  AND   COST  ACCOUNTING 


b.  That  which  is  incurred  by  operating  the  plant,  exclusive 
of  direct  labor  and  material. 

The  first  part  is  made  up  of  ownership  or  rental  of  a  number 
of  machines  or  work  benches,  properly  housed.  The  second 
part  consists  of  such  items  as  power,  oil,  waste,  repairs,  etc.  We 
are  able  to  determine  for  each  machine  in  the  factory  both  an 
idle-  and  an  operating-expense  rate. 

Any  article  manufactured  on  a  machine  should  undoubtedly 
bear  the  operating-expense  rate  for  the  time  during  which  the 
machine  was  operated  on  it. 

The  expense  of  maintaining  the  machine  in  idleness  during  the 
time  it  was  not  operated  cannot  legitimately  be  charged  to  the 
work  done  while  it  was  operated,  and  should  be  put  into  another 
account. 

In  every  plant  there  are  to  be  considered  two  kinds  of  burden : 

a.  That  which  produces  goods  and  which  can  legitimately  be 
charged  to  the  cost  of  those  goods,  and 

6.  That  which  produces  nothing,  and  must  be  put  into  some 
other  account. 

A  careful  consideration  of  the  expense  incurred  while  the  plant 
is  idle  leads  to  very  fruitful  results:  first,  an  attempt  to  find 
out  why  the  plant  is  idle,  and  then  an  attempt  to  eliminate  the 
causes  of  idleness,  which  are  lack  of  work,  lack  of  help,  lack  of 
material,  repairs,  etc. 

The  accountant  has  looked  upon  costs  as  a  bookkeeping  prop- 
osition, whereas,  in  truth,  costs  are  much  more  closely  connected 
with  engineering  and  production  than  with  the  subjects  of  book- 
keeping and  accounting. 

Money  spent  without  any  corresponding  production  must  be 
kept  separate  from  that  which  was  productive,  either  directly  or 
indirectly. 

The  following  question  is  put  to  us  by  the  accountant  and 
financier,  "What  are  we  going  to  do  with  this  expense  of  idle- 
ness?" they  having  never  before  realized  that  it  cost  something 
to  be  idle. 

My  frank  answer  to  that  is  that  I  do  not  know.  Moreover, 
I  don't  care,  provided  they  do  not  charge  it  to  me  in  the  products 
which  I  buy  from  them.  My  recommendation,  however.would 
be  that  they  see  how  they  can  eliminate  such  expense  by  proper 
managerial  methods. 

Mr.  Gantt  is  on  the  right  track  when  he  says  frankly  "I 
do  not  know."  Confession  of  ignorance  is  often  the  beginning 
of  wisdom.  In  scientific  management  it  is  the  substratum 
below  the  foundation  (see  the  "  pyramid,"  page  119),  whose 
bottom  courses  are  "I  want  to  know"  and  "I  am  going  to 
know."  But  when  he  says  "I  don't  care"  he  takes  the 
position  o'  the  selfish  consumer,  who  thinks  he  should  not 
pay  any  portion  of  the  cost  of  the  business  risks  which  the 
enterprising  manufacturer  assumes  when  he  provides  facili- 
ties for  meeting  the  fluctuating  and  intermittent  demands 
of  his  customer  i. 

One  of  the  risks  is  that  of  idleness  of  some  part  of  the 
machinery  for  some  part  of  the  time,  even  when  business 
conditions  are  normal.  This  risk  the  ultimate  consumer 
pays  for,  just  as  he  pays  for  insurance  against  fire  and  other 
accidents  in  the  factory  and  for  all  the  usual  losses  that  are 
due  to  lack  of  "proper  managerial  methods." 

Mr.  Gantt  seems  to  assume  that  the  engineer,  the  financier 
and  the  accountant  are  three  different  persons,  with  different 
and  possibly  antagonistic  opinions.  In  fact  the  manufac- 
turer is  often  financier,  engineer  and  accountant  combined, 
and  he  regards  the  question  of  cost  as  equally  one  of  book- 
keeping, of  production  and  of  finance. 


Let  us  apply  Mr.  Gantt's  question  "What  are  we  going  to 
do  with  this  expense  of  idleness?"  to  a  concrete  hypothetical 
case,  and  endeavor  to  find  an  answer. 

A  certain  factory  puts  in  an  expensive  machine,  or  group  of 
machines,  to  make  a  product  for  which  there  is  a  limited 
and  fluctuating  demand.  The  extent  of  the  demand  will 
depend  to  a  large  extent  upon  the  price  which  the  consumer 
is  asked  to  pay  for  the  product,  and  upon  the  activity  and 
the  expenditure  of  the  selling  department.  If  the  factory 
charges  the  article  to  the  sales  department  at  too  high  n 
"factory  cost"  there  may  not  be  enough  margin  between 
this  price  and  the  price  asked  of  the  consumer  to  warrant 
any  great  expenditure  by  the  sales  department  in  an  attempt 
to  increase  the  demand,  and  consequently  the  factory  will  be 
insufficiently  supplied  with  orders  If,  on  the  othe  hand,  the 
factory  does  not  charge  enough  to  cover  the  cost  of  material, 
labor  and  burden,  the  factory  will  be  run  at  a  loss. 

The  thing  to  be  done  is  to  make  a  careful  estimate  of 
the  probable  burden  under  different  assumed  conditions 
of  demand,  and  try  to  fix  a  standard  burden  per  unit  of  product 
or  per  machine  hour,  to  be  used  in  establishing  the  "factory 
cost,"  which  is  defined  as  the  warehouse  value"  oi  the  price 
at  which  the  article  is  to  be  billed  to  the  sales  department. 
It  is,  as  nearly  as  can  be  ascertained,  the  cost  of  reproducing 
the  article  at  the  present  prices  of  material  and  labor,  with  a 
normal  burden  charge,  that  is  the  estimated  burden  per 
machine  hour  or  per  unit  of  product  when  the  machinery  is 
run  at  the  expected  normal  number  of  hours  per  year. 

Example.  Let  the  cost  of  the  machine,  or  group  of  ma- 
chines, be  $10,000  and  let  the  yearly  burden  estimate  be  as 
follows: 


Fixed  Charges 
Interest  on  investment,  at  5% 
Reserve  for  depreciation  due  to  obso- 
lescence   of    machine   or    product 
Sinking  fund,  20  years,  5% 
Taxes 
Insurance 
Rent  of  space  occupied 

Variable  Charges 
Number  of  hours  the  machine  runs 


$500 


302 

100 

50 

200 

1152 


1000       2000       3000 


Supervision,  indirect  labor,  small  tools 

$500 

$600 

$700 

$800 

Power 

100 

150 

200 

250 

Light 

40 

60 

80 

100 

Repairs,  oil,  waste,  etc. 

0 

100 

200 

300 

Depreciation  due  to  wear  and  tear 

0 

100 

200 

300 

640 

1010 

1380 

1750 

Total  burden,  fixed  and  variable 

1792 

2162 

2532 

2902 

Burden  per  machine  hour 


$ $2   16     $1.27      >0  97 


When  the  machine  is  idle  for  the  whole  year  the  burden 
charge  against  it  is  $1792.  It  receives  no  care  from  the 
superintendent,  and  uses  no  power  and  no  light,  but  charges 
have  to  be  made  against  it  for  these  items  because  it  has  been 
provided  with  facilities  for  their  use.  The  $1792  is  the  fac- 
tory loss  due  to  idleness.  The  loss  of  the  business  may  be 
far  greater,  for  the  sales  department  may  have  incurred 


REPORTS  TO  STOCKHOLDERS;    EDUCATION  OF  ACCOUNTANTS,  ETC. 


243 


expenses  without  making  sales,  and  there  are  no  profits, 
which  might  have  been  made  if  the  space  in  the  factory  had 
been  occupied  by  other  machinery  making  products  for  which 
there  was  an  active  demand. 

The  management,  with  this  estimate  before  it  has  now  to 
consider  what  is  the  probable  number  of  hours  per  year 
that  the  machine  will  run  under  normal  conditions  of  busi- 
ness, and  normal  activity  of  the  sales  department,  and  what 
is  the  corresponding  normal  burden  that  must  be  added  to 
the  cost  of  material  and  of  labor  to  qbtain  the  factory  cost, 
at  which  the  product  is  to  be  billed  to  the  sales  department 
or  valued  in  the  inventory. 

Suppose  2000  hours  is  selected  as  the  most  probable  time, 
and  SI. 27  as  the  most  probable  normal  burden  charge.  The 
factory  may  run  3000  hours,  but  this  machine  is  idle  one- 
third  of  the  time.  The  cost  of  the  1000  hours  of  idleness  is 
included  in  the  $1.27  per  hour,  and  thus  it  gets  charged, 
through  the  sales  department,  to  the  consumer.  But  sup- 
pose that  through  inactivity  of  the  sales  department  the 
machine  is  called  on  to  run  only  1000  hours  per  year.  The 
total  burden  according  to  the  table  is  $2162,  but  burden 
account  is  credited  and  factory  product  is  charged  only 
1000  hours  at  $1.27,  or  $1270,  leaving  an  extra  cost  of  idle- 
ness of  $892  which  remains  as  a  debit  balance  of  Burden 
account,  to  be  charged  later  to  Profit  and  Loss  or  "some 
other  account." 

If,  however,  a  great  demand  for  the  article  should  spring 
up,  causing  the  machine  to  run  3000  hours  per  year  then 
Burden  account  would  show  the  following: 

Dr.     Total  burden,  as  per  table  $2902 

Cr.     Burden  charged  to  cost,  3000  hours  at  $1.27        $3810 

Overearned  burden  due  to  extra  activity  (which  is  to  be 
credited  to  Profit  and  Loss)  $908 

The  question  "what  are  we  going  to  do  with  this  expense  of 
idleness?"  is  thus  easily  answered  if  we  adopt  the  principle 
of  the  normal  machine-hour  burden  or  the  normal  burden 
per  unit  of  product.  Burden  account  is  charged  with  the 
sum  of  the  fixed  and  variable  burden  expenditures,  and 
credited  (cost  of  product  being  charged)  with  the  normal 
burden — so  many  machine  hours  at  so  much  per  hour,  or 
so  many  units  of  product  at  so  much  per  unit.  The  cost  of 
product  thus  includes  a  charge  for  a  normal  amount  of  idle 
time  of  the  machines.  If  the  idle  time  exceeds  the  normal 
amount  the  cost  of  the  excess  of  idleness  will  appear  as  a 
debit  balance  of  Burden  account.  If  it  is  less  than  the  normal 
amount  then  there  will  be  a  credit  balance  of  Burden  account, 
which  will  finally  be  transferred  to  the  credit  of  Profit  and 
Loss. 

There  is  nothing  new  in  this  method  of  treating  the  expense 
of  idleness.  It  was  described  by  Gershom  Smith  in  his 
article  in  Engineering  Magazine  of  June,  1909,  quoted  on 
page  150.    He  says: 

Where  owing  to  trade  conditions  the  machines  do  not  operate 
sufficient  time  to  absorb  the  total  expense,  if  there  is  no  reserve 


to  draw  upon  I  prefer  to  show  the  deficit  as  a  charge  against  the 
department  income  or  profit  and  loss  account,  thus  keeping  the 
costs  on  a  normal  basis. 

Mr.  Smith  seems  to  have  used  the  method  in  connection 
with  machine-hour  burden  rates  as  early  as  1902.  The 
present  author  used  it  in  the  same  way  in  1909,  as  mentioned 
in  his  article  in  the  Iron  Trade  Review,  Feb.  4,  1909,  quoted 
on  page  79,  but  he  had  used  it  in  connection  with  the  old- 
fashioned  method  of  charging  burden  as  a  fixed  percentage 
on  direct  labor,  as  early  as  1887.  Manufacturing  account, 
in  the  factory  ledger,  was  charged,  and  Factory  Expense 
credited,  with  a  percentage  on  direct  labor,  and  in  the  cost 
ledger  the  same  percentage  on  direct  labor  was  charged  to 
the  cost  of  individual  articles.  Factory  Expense  was  charged 
with  all  the  factory  burden,  and  if  at  the  end  of  the  year  it 
showed  a  debit  balance,  this  represented  the  unearned  burden, 
including  the  cost  of  idleness  in  excess  of  the  normal  amount, 
and  it  was  closed  into  Profit  and  Loss. 

BLANK  FORMS  USED  IN  COST  ACCOUNTING 

In  the  preceding  chapters  numerous  blank  forms  used  in 
the  production,  accounting  and  statistical  departments  of 
various  industries  have  been  given.  On  pages  164  to  169 
will  be  found  reproductions  of  several  forms  contributed  by 
Mr.  Albert  Walton,  which  have  been  found  useful  in  metal- 
working  establishments.  An  index  to  all  the  forms  in  this 
book  will  be  found  on  page  259.  Several  cards  used  in  dif- 
ferent factories  are  shown  below,  viz.: 

In  an  automobile  factory,  six  forms: 


WORKMAN'S  ABSENCE  REPORT 


LEFT 
WORK 


YM    RETl'RN 


CLOCK  NO. 


Mill 
RETURN 


EXPLANATION:-     Absences  or  Lates  are  allowed:- 


When  causing  No  Overtime  Work. 


When  No  Lot  Urgent  Tags  ahead  of  Man. 


When  Workman  arrarrges  "with  Foreman  for  Workman's  job  to  go  on 
without  delaying  Production. 


REMARKS:-  Specify  condition  of  work  ahead  of  Man:- 


DEPT.  FOREMAN 


Mo.       I>nj Vr. 


Signed 


D  M  Clerk 


(NOT)  ALLOWED 


Mo.       Day        yr, 


Signed 


FCmploy.  Sup'v'r. 


CHECKED  WITH 
WORKMAN'S  RECORD 


Mo.       Da  j        Y 


Signed 


Emp.  Dept.  Clerk 


Form  AU1.    Workman's  Absence  Report 
(Size  4|  in.  sq.) 


244 


BOOKKEEPING  AND  COST  ACCOUNTING 


Form  A-1257-Mfg. 

WORKMAN'S  RATING  REPORT 

NAME 

CLOCK  NO. 

OLD  RATE 

NEW  RATE 

NEW  RATE 
BEGINS 

Mo. 

Day 

Yr. 

CONTINUES 
UNTIL 

Mo. 

Day 

Yr. 

REPORT 
ISSUED 

Mo. 

Day 

Yr. 

PERIOD 
BEGINS 

PERIOD 
ENDS 

TERIOD 
LENGTH 

Hrs. 

KAI  mit 

EXPLANATION 

Rl  |  ORTJ 

STAMHRU 

e 

Per  cent  of  task  time  earned 

P. 

absence  per  hour  worked 

Pa 

1 time  spent  on  day  work 

P, 

s 

Average  cost  of  spoiled  work  per  hour 

N 

No.  of  major  processes  can  do 

y 

Years  of  continuous  service 

c 

Conduct  and  co-operation 

REMARKS: 

the  workman,  one  for  the  paymaster, 

a7id  one  to  the  tickler) 

Your  record  through  the  current  period  will  increase  or  decrease  your  rate 
for  the  coming  period. 

AUTHORIZED 

APPROVED 

APPROVED 

Production  Manager 

Superintendent 

Dept.  Foreman 

Returned 

Form 

MANS      _. 

NO.        D          M 

Issued 

NAME 

IDLE  TIME 

Hrs. 

10b 

CTH<?     F-No. 

DRAW. 
NO. 

LOT 
NO. 

OPER. 
NO. 

MATERIALS 

INSTRUCTIONS 

Not  on  Floor. 

Lacking,  or  Missing. 

Lot  Incomplete. 

Defective,  or  Incomplete. 

Tags  Missing. 

No  Blue  Print. 

Not  up  to  Machine. 

Delayed  for  Inspection. 

Waiting  at  Cage. 

MACHINE 

TOOLS 

Break-Down. 

Lacking,  or  Missing. 

Repairmen  Working  on. 

Defective,  or  Faulty. 

Belt  Trouble. 

Delayed  for  Grinding 

Power  Shut-Offs. 

Delayed  for  Supplies 

INSTRUCTIONS:-  Carefully  check          FOREMAN| 

item  causing  delay. 

Idle  time  will  not  be  allowed  if 

report  is  incomplete 

CLERK 

Form  AU2.    Workman's  Rating  Report 


Form  AU4.    Idle  Time  Record 


Eorm  A-ltiTS-Mfg. 

MACHINE 

SYMBOL, 

Issued 

LOCATED 
IN  DEPT. 

IDLE  MACHINE  RECORD 

ELAPSED 
TIME 

Hts.      " 

MACHINE 

TOOLS 

Break-Down. 

Fixture  Lacking. 

Under  Repair. 

Fixture  Defective, 

Power  Shut-Offs. 

Supplies  Lacking. 

Belt  Breakage. 

Supplies  Defective. 

MAN 

MATERIALS 

Absent. 

Not  up  to  Machine. 

No.  Regular  Operator. 

Urgent  on  Preceding  Mac 

hine. 

Ahead  of  Schedule. 

Up  but  No  Orders. 

Up  but  Nolnst.  Card. 

INSTRUCTIONS -Check  opposite 

SIGNED 
DEPT. CLERK 

cau 
for 

e;  forward  to  planning  department 
record. 

NOTED 
PLAN  DEPT. 

F25  AP 

Department:    D  M 

Charge     Premium  Only     to 

Workman's                                                 Workman's 

Name                                                             No.                      D      M 

Record  of  Time  Worked.Good  Pieces 
Claimed, and  Day  Wages  advanced  on 

PREMIUM  JOB 

Operation_No.— Piece  Symbol  — Lot  No. 

Month 

Day 

Number  »1  Guud 
Pieces  Finished 

ettcb  Hay 

Time 
Worked 

Hrs. 

Min. 

Hrs. 

Min. 

Premium 
B     Base  Time 
allowed 

Prem.  Limit 
C=AB    Time 

Time  Taken 
D 

Time  Saved 
E=C-D 

Pirtolum 
.      F  =  HETJme 

Man's  Rate 

1   :                          i. 

FX                      = 

_    ^    .                   Workman's 

Totals               Clalm  A 

D 

Bund 
Inspector  A 

PREMIUM 

Poat  Premlum^Onlj 

Payroll 

Cost 

Fona-A-1083 

Form  AU3.    Idle  Machine  Record 


Form  AU6.    Premium  Carry  Over  Card 


A-1077-D 
Issued 


REPORTS  TO  STOCKHOLDERS;  EDUCATION  OF  ACCOUNTANTS,   ETC.  245 

In  a  factory  making  a  variety  of  small  articles,  sevenforms: 


5:00  P.M.  ll/23 
7:00  A.M.  11/28 


Drawing  No. 


Man's 

Name 


Man's 
No. 


D   6     M     S3 


Piece  Symb.  1 t>p«-r.  N 


Operation  Name 

Drill  A  Tap 


Original 
Pieces 
Issued 


Machine 

for  this 

Operation 


Machine 
Work'd  on 
this  Opr'n 


Machine 
for  next 
Operation 


14  DP 
DG  M 


20  DP 
D2  M 


No.  of  Good  Pes. 

.   claimed  Finish 

ed  on  this  Job 


Rel.  No. 


If  Job  is  nJt  finished  r  ^- 


If  Job  is  finished       »-t*- 


^ 


NF 


Inspected 
D.M.H. 


Route 
Sheet 


Man's 
Cost 


Mach. 
Cost 


Man's  Job  Card 


DAY  WORK B 


Pram.  Limit 
C-AB     Time 


Time  Saved 

E=C-D 


G  =  D  +  F 


Man's  Rate 


.40 


Earnings 


(Coupons  for  Inspector  and  Move  Man) 


I  have  inspected  the  first 
and  found  them  O.K. 

pieces  on  this  job 

Drawing  No. 

Lot  No. 

Form  A-1077 
Signed  by 

Stan's                                                                                        Man's                   |-»        M 
Name                                                                                        No. 

Piece  Symbol 

Oper.  No.  |                           Operation  Name 

Original 
Pieces 
Issued 

Machine 

for  this 

Operation 

j 

Machine 
Work'd  on 
this  Opr'n 

Mate- 
rial 

Data 

Means 

Star- 
ted 

Fin- 
ished 

Machine 
for  next 
Operation 

Returned 

Drawing  No. 

Lot  No. 

A-1077-A 
Issued 

Man's                                                                                       Man's                   r*         M 
Name                                                                                No. 

Piece  Symbol              1  Oper.  No. 

Operation  Name 

Original 
Pieces 
Issued 

Reasons 

Machine 
for  this 

Operation 

Pieces 
Spoiled 

Wt.                  Material 

Machine 
Work'd  on 
this  Opr'n 

Pieces 
Defective 

Machine 
for  next 
Operation 

Pieces 

for 
Repair 

Mark  off  Machines 
Not  worked  on 

Good 
Forw'rd'd 

Moved 
to 

Mo. 

Day 

Hour 

Rec'd 
by 

Route 
Sheet 

Moved 
by  1st 

Inspected 

by 

Moved 
by  2nd 

NO.  OF 
PIECES 

DATE 

ORDER 
NO. 

NAME 

MATERIAL 

OPERATION 

Dopl. 

MACH. 

First 
Lot 

BftGIN 

Second            Third 
Lot                 Lot 

Fourth 
Lot 

1 

(5  lines,  i  per  inch) 

1 . —i ! 

1               ...   . 

I 

6 

Sinilpfip'.T 

K,   1 

7 

Poli-h 

8 

Stump 

,. 

9 

Drill 

Id 

10 

Fill 

,. 

11 

Brush 

,, 

12 

Trim 

13 

R.polish 

K3 

14 

Clean 

K7 

15 

Pack 

16 

('0  lines,  down  to  line  SI) 

,, 

5m  C-1G  Form  B  115                                                 SHOP  ORDER 

Reverse 

DEPT. 

P 

< 

OPERATION 

RECEIVED 

Date 

Daily 

Total 

Daily 

Total 

Daily 

(Five  addit 

onal  double  columns] 

, 

I 

Form  CE1.    Shop  Order. 


Name 

|  Pieces  for 
|  Machine 

Pirt 
Mo. 

Material 

A          8 

Operation 

Dep't 

SI  a 

No. 

Clin. 

Ko. 

T....I 

LoMttea 

,£W., 

HoTTinxkS 

{tsltnea,  £  per  inch) 

1 

MASTER  ROUTE  CARD  Date 


ir/te  reverse  side  has  the  same  printing,  omitting  the  top  heading) 

Form  CE2.     Master  Route  Card 


RET'D 
ISS'D 

Part  and  OrderNo. 

Mans  Name 

Man's  No. 

Time  Allowed 

Time  Taken 

Finished 

Not  Finished 

Bonus 

Hourly  Rate 

Transferred 

Breakdown 

Pay  for 

Wages 

Caught  Up 

Machine  No. 

Machine  Expense 

Man  Expense 

Name  of  Part  or  Job 

Operation  Name 

Oper 
No. 

Amount 
Finished 

Rate 

Wages 

{'-<  lines) 

Entered  in 

O 

K    for  Quality 

O.K.  for  Quantity 

Dm*. 

Clerk 

Schcd. 
ule 

Record 

Roll 

I'odt 

8140                                       PRODUCT 

ION  CARD 

Form  AU5.  Man's  Job  Card 


Form  CE3.    Production  Card. 


246 


BOOKKEEPING  AND  COST  ACCOUNTING 


Order 

No. 

Article 

Ojwr. 

No. 

Taken 

Amount 

Hui*wi 

PUm 

lUte 

Wnitcs 

Uleadinaa  on  the  reverse 

side 

of  Card  CE 3.) 

{13  lines,  t  per  in.) 

Form  CE3.     Production  Card,   Reverse) 


RET'D 

Dept. 

ISSD 

Man's  No. 

Man's  N  

Hourly 
Rate 

Machine  No. 

Machine  Expense 

Man  Expense 

Name  of  I'arl  or  Job 

Order 

No. 

Operation  Name 

Opor. 
No. 

Time 
Tak  on 

A nut 

Flnliuctl 

Rftte 

Wages 

(.*  itnui  t  per  in.) 

Entered  In 

O.K.  for  Quality 

O.K.  for  Quantity 

Do]*. 

CI,  ,k 

Hatai  i- 

III.' 

\ 

IU'i  ul il 

P%3 

Run 

fort 

\U:  ....I 

»W*                                        PRODUCTION  CARD(Ovcrtlmc) 

Form  CE5.    Production  Card,  Overtime 


(Size  »  *  11  In.)             Date  Ordered    4/19  1017                                                Article                          1871.                            RECORD  OF  PROGRESS 

No.  of  Pieces       600                                                                     Order  No.  250 

Operation  Name 

Murk 

Handsaw 

Cut  Flat  Edge 

Round  Edges 

Turn  Pocket 

Dole- 

M    IF,    1  1,1 

Product 

Wages 

Product 

Wanes 

Product 

Wages 

Product 

Wages 

I'roduct 

Wages 

li, 

i; 

H 

5  a 

E  c 

=  0' 

9  | 

S  5 
S'b 

m 

Apr. 

i'.i 

000 

.:, 

(50 

2 

III! 

■jip 

130 

... 

150 

2 

Ml 

■.■I 

150 

1 

... 

St 

■", 

cm 

H 

.... 

50 

1 

,'.ii 

s< 

ill 

• 



3 

lill 

Form  CE4.     Record  op  Progress  of  an  Order 


Ree'd 

Unish'd 

Machine 
Symbol 

Charge 
Symbol 

Repair  Order  No. 

Operator 

Partly  -  Totally  Disabled 

Montli 

Dm 

.,., 

_A.M P.M. 

Parts  Broken 

Work  In  Machine  at  Time 

Please  make  above  reparlrs  by 

Mo, 

D.T 

Y... 

Oi 

Machine  nvallahle  for  repairs  on 

This  order  must  be  sent  to  Repair  Office 

im  Brts-wo-BiM                           REPAIR  ORDER 

I  oremun 

(  The  reverse  aide  of  this  Card  is  printed  as  below) 

Oper. 

No. 

Operation 

(..Inc.*  ■■( 
Work 

Workman 

Rate 

1 

{in  tinin.    !  ;••  r  ••>.-!,  ) 

2 

1                                                                1                          II                                     l 

W  a  ties 

Expense 

Material 

Expense 

Total  Charges 

I  ..  I.,    Kepi   l>\    Repu 

r  Office 

Form  CE6.    Repair  Order 


Iss'd 
Rec'd 



From 

Dept. 

To 

Dept. 

Order  No. 

Pieces  or  Quantity 

Name  of  Part 

IYi  In.  apace 

O.K.  (or  Quantity  Issued 


O.K.  (or  Quantity  Received 


TO  BE  SENT  TO  MFG.  OFFICE 
FORWARDING  TICKET 


ORDER  NO. 


Pieces  or  Quantity 


Tills  coupon  must  remain  with  material 
(or  Identification 

Identification  Coupon 


Form    CE7.      Forwarding    Ticket  and    Identification 
Coupon 


REPORTS  TO  STOCKHOLDERS;   EDUCATION  OF  ACCOUNTANTS,  ETC. 


247 


Form  LS  is  a  Job  and  Time  Ticket  used  by  Lodge  &  Shipley 
Co.,  Cincinnati,  Ohio. 


(Size  of  Card  6  x  4  in.) 
Operation: 

Shop  No. 

Name  of  Piece 

Sym.  & 

1\     N.. 

I 

Ouan. 

Pwm.  tlluw.  Frr  to      1      Tracer*  Check 

Prtmluto  l'»l'i 

To 
Detach               Come 

Defective 

Spoiled 

Man  No. 

Workman: 

■0 

IT) 

Stop 

Start 

Previous  Time  on  thia  Job 

Man  No. 

Tl™ 

M«n  N  ■ 

Ilm. 

Total 

Allow 

O.T. 

Rate 

Earnings 

Actual 
Time 

Prem. 

N'ot.V 

FlnishcJ  or  not  Finished 

0--.7 

BMtrum*                             Man  No. 

THIS  SIDE  OUT 

< — ^£           Put  Card  In  Receiver  To  These  Marks        ^^ >. 

Day 

Present 

Absent          Late 

Overtime 

Notes 

Thur. 

1 

Form  LS.    Job  and  Time  Ticket.     (Lodge  &  Shipley  Co.) 

Form  PR  is  a  common  form  of  Pay  Roll. 
Forms  NE  1  and  2  are  two  cards  used  for  general  machine 
work  by  Nash    Engineering  Co.,  South  Norwalk,  Conn. 


(SUo  JX  ■  *X  '"-< 

Date 

1 

<n. 

Extra  Time 

Regular  Time 

> 

H 
e 
g 

0 

B 

A.M. 

z 

0 

0 

z 

P.M. 

Z 

0 

- 

z 

iSpaceB for 

'lays) 

0 

(Total  at  br 

ttom) 

A.M. 

.  *1 

Form  NE1.    Clock  Time  Card 

This  time  card  is  Form  L38,  furnished  by  Simplex  Time 
Recording  Co.,  Cardner,  Mass. 


£."«.«                          JOB   CARD 
Job  No.                                List  No.                 Dwg.  No. 

Operation 

Rec'd 

Fin. 

Def. 

Elapsed 

Time 

(«  IfMS) 

IN 

OUT 

Form  NE2.    Job  Card.     (Size  3£  X8|  in.) 


lS*ia»'tf*'SXin.) 

Examined  and  Registered 

PAY  ROLL 

Week  Ending 

Pay  Sheet 

Dept. 

Approved  for  Payment 

Number  of  Sheet 
Total  This  Dept. 



Name 

No. 

Rate 

Total 
Time 

Pay 

Deduct 

Net 
Pay 

&  lines  '<  per  inch 

III 



£E 

Form  PR.    Common  Form  of  Pay  Roll 


COST  RECORD 

Date 
Issued 

Order 

No. 

Pieces 
Ordered 

Pieces 
Received 

Material 

Labor 

Expense 

Total 
Coat 

Total  Cost 

Rate  of 
Expense 

I   OI.il 

Per 

Total 

Per 

Iota] 

Per 

P.- 

i  ft  tinea) 

Form  CR.    Cost  Record.     (Size  GjX3  in.) 
Forms  CR,  PW  are  a  Cost  Record  and  a  Plant  Work  Job  Card  which  are  found  useful  in  many  shops. 


248 


BOOKKEEPING  AND  COST  ACCOUNTING 


PLANT  WORK  JOB  CARD  w    „       v 

Workman  No. 
(<Uz*  C  x  SV  in.)                                   Week  Ending 

Mon. 

Tues. 

Wed. 

Thur. 

Frl. 

Sat. 

Sun. 

New  Work  Order  No. 

Hours 

Ck. 

Rate 

Amount 

Ck. 

ii-lines  apace ) 

Repair  Order  No.            (i5  spaces) 

1 

2 

3 

4 

5 

6 

7 

8 

9 

_      I 

Form  PW.    Plant  Work  Job  Card 


{Size  of  Card  8%  x  «  in.)                                 „,     , 
„r     ,    „     ..                                                         Workn 

en  N  i is. 

A 

Size 

Description 

B 

C 

Lot  No. 

Special  Order  No.            i      Figure  No. 

Symbol 

Operation  No. 

UriaJini: 

Polishing 

Buffing 

Color  Hull 

Worked  with  No 

Quantity 

Quantity 

Time 

K.Mr 

Wages 

In  com  plate- Continued 

Good 
A 

Def 

Reg                     

P.W. 

Good 

Dot 

Orer                

P.W. 

Entered 

Oood 
C 

Def 

P.W. 

Tolal                      

D.W. 

Total 

CK 

CK 

CK 

(Rtverse  Side) 

BUFFING  AND  POLISHING  JOB  TICKET 

When  work  is  on  more  than  one  Lot  Number,  record  quantities  on  each 
Lot  Number  in  Separate  Columns 

Lot  No. 

Lot  No. 

Lot  No. 

Lot  No. 

Lot  No. 

[6  lines) 

1 

2 

3 

On                    Off 

On 

Off 

On 

Off 

M 

( 7  lines,  Mun.  to  Sun. ) 

II                                    III!                           1— 

Overtime                                      Hrs.                Reg.  Time                               Hrs. 

Form  LCI 


Form  LCI.    Buffing  and  Polishing  Job  Ticket 
(The  Lunkenheimer  Co.) 

Form  LCI  is  a  job  ticket  used  in  one  department  of  the 
Lunkenheimer  Co.,  Cincinnati,  0.,  manufacturers  of  valves 
and  other  articles  of  iron  or  brass. 

Other  weekly  time  and  job  tickets  of  the  same  size  and 
general  character  but  with  different  printing  and  different 
colors  are  used  for  other  departments,  such  as  Screw  Machine, 
Assembling,  Finishing  and  Testing;  also  a  Time  Card  for 
miscellaneous  indirect  labor. 

Form  LC2  shows  the  printing  on  the  Analysis  of  Pay  Roll, 
and  Form  LC3  that  oil  the  Pay  Roll  Distribution  Voucher 
of  the  Lunkenheimer  Co. 


PAY  ROLL  DISTRIBUTION  VOUCHER 
The  Lunkenheimer  Co.      Cincinnati,  Ohio. 


Week  Ending. 


>. 

2 

Direct  Labor. 

c 

3 

Indirect  Labor. 

O 
Eli 

7 

Repairs,  Patterns. 

w 

9 

"        Machines,  Tools  and  Equipment. 

9 

Errors  and  Experimental. 

m 

10 

General  Expenses. 

22a 

Direct  Labor,  Molding. 

e* 

226 

Coremaking. 

23a 

Indirect  Labor,  Cupola. 

p 

236 

Anneal  Furnace. 

o 

ft, 

23z 

"        Sundry. 

c 

27 

Repairs,  Patterns. 

0 

1- 

28 

"        Machines,  Tools  and  Equipment. 

29 

Errors  and  Experimental. 

30 

General  Expense. 

42a 

Direct  Labor 

Lathe. 

Alb 

" 

Screw  Machine. 

A3c 

" 

Punch. 

Aid 

" 

Bench  and  Teat. 

Ale 

" 

Buffing  and  Polishing. 

>■ 

42/ 

" 

Plating. 

+* 

43a 

Indirect  Labor,  Lathe. 

d 

43b 

" 

" 

Screw  Machine. 

m 

43c 

" 

" 

Punch. 

3 

43d 

" 

" 

Bench  and  Test. 

CQ 

43e 
43/ 
43fl 
43z 

•• 

» 

Buffing  and  Polishing. 

Plating. 

Lathe  and  Bench  Dist. 

Other  Distributive. 

Ala 

Repairs, 

M.  T.  and  E.— Lathe. 

476 

11 

*' 

Screw  Machine. 

Correct . 


47c    Repairs,  M.  T.  and  E. — Punch. 
Aid  "  Bench  and  Test 

47c  "  "         Buff,  and  Pol. 

47/  "  "  "         Plating. 

50  Errors  and  Experimental. 

51  General  Expense. 


62a 

Direct  Labor,  Lathe. 

626 

Bench  and  Test. 

>> 

63a 

Indirect  Labor,  Lathe. 

c 

636 

Bench  and  Test. 

63z 

Distributive. 

In 

67a 

Repairs,  M.  T.  and  E. — Lathe. 

O 

676 

Bench  and  Test. 

& 

67* 

Distributive. 

70 

Errors  and  Experimental. 

71 

General  Expense. 

81 

Labor. 

* 

83 

Repairs. 

&H 

84 

General  Expense. 

91 

Packing  and  Shipping  Expense. 

92 

Stable  Expense. 

93 

Drafting  Expense. 

94 

Laboratory  Expense. 

> 

97 

Accounting  Costs,  Timek'g  and  Orders. 

~ 

100 

Repairs,  Machines,  Tools  and  Equip. 

"£- 

101 

R.  R.  Maintenance  and  Repair. 

5 

103 

Repairs,  Real  Estate  and  Buildings. 

104c 

Sundry  Expense,  Rec'g.  St'ge,  Transp'n. 

104c 

Pattern  Shop. 

104. 

Tool  Room. 

I04t 

Tool  Storage. 

Approved . 


104/  Sundry  Expense,  Cleaning  and  Sweeping. 

I04ff  Japanning. 

104ft  "  Emp.  Club  Room. 

104/  "  Inspection. 

\0AI  "              "  Police  and  Fire  Pro. 

104m  "              "  25%  Bonus,  Pr.  Lab. 

I04n  "              "  50%  Bonus,  Pr.  Lab. 

104.:  "               "  Miscellaneous 


112  Pattern  Making. 

1 13  New  Tools  in  Process. 

1  14     Stock  Tools  in  Process. 


■*» 

0) 

133 

Sherardizing  Labor. 

U 

134 

Expense. 

J3 
CG 

136 

Equipment  Repair. 

154 

Advertising. 

M 

155 

Salesmen's  Salaries. 

158 

City  Sales  Department. 

CO 

160 

Exhibit  Expense. 

161 

Miscellaneous. 

162 

Salaries  of  Officers  and  Clerks. 

c- 
C 

c 

163 

Stationery  Department. 

165 

Office. 

169 

Restaurant. 

c 

170 

Automobile. 

171 

Donations. 

172 

Miscellaneous. 

< 

III 

Labor — Credit 

Total 


Form  LC3.     Pay  Roll  Distribution  Voucher 


REPORTS  TO  STOCKHOLDERS;   EDUCATION  OF  ACCOUNTANTS,  ETC. 


249 


ANALYSIS  OF  PAY  ROLL 


(Column  Headings ) 

The  Lunkenheimer  Co.,    Cincinnati,  Ohio. 

Hours 

Wages 

No.  of  Men 

Av.  Rate 
per  Hour 

Compared  with 

Descriptive 

No.  of  Men 
Inc.              Dec. 

Rate 
Inc.               Dec. 

Under  Descriptive  are  the  following: 

1  Floor  and  Bench  Molders. 

2  Machine  Molders. 

3  Core-Makers,  Day-work. 

4  Core-Makers,  Piece-work. 

5  Molders'  Helpers. 

6  Sundry  Core-room  Laborers. 

7  Refining  Laborers. 

8  Furnace  Tenders. 

9  Sand  Shovelers. 
10  Grinders. 

1  I  Cleaners,  Filers  and  Sprue  Cutters. 

12  Sand  Blast  Operators. 

13  Testers — Rough  Castings. 

14  Foremen. 

15  Miscellaneous. 
1 5 1  Briquetting. 

Total— Brass  Foundry 


Total — Iron  Foundry 


27 

Foremen,    Factory    Productive 
Departments. 

> 

28 

Tool  Room. 

-*3 

29 

Pattern  Shop. 

3      09 

30 

Power  Plant. 

31 

Millwrights. 

32 

Blacksmiths. 

0  ed 

Z  P- 

1  O 

>> 

33 

Janitors. 

34 

Truckmenand Elevator  Operators 

35 

Receiving  and  General  Stores. 

o 

36 

Brass  Casting  Stores. 

es 

37 

Iron  Casting  Stores. 

38 

Finished  Stores. 

39  Tool  Storage. 
40 

41  Painting. 

42  Japanning. 

43  Inspection. 

44  Wrapping. 

45  Shipping. 

46  Stable. 

47  Watchmen. 
48 

49 

50  Miscellaneous. 


Total — Factory  N.  P.  Depts. 
(Size  of  sheet,  16^X11,  divided    in  two  parts 
No.  56.) 


Total — Iron 

3 

c 

u 

a 

P4 

55  Machine  Hands,  Day-work. 

56  "                        Piece-work. 

t 

0 

Total — Punch 

51  Machine  Hands,  Day-work. 

52  Piece-work. 

53  Bench  Hands,  Day-work. 

54  "  Pieee-work. 


57 

Machine 

Hands,  Day,  Brass  Valve  Dept. 

58 

" 

"          "      Lubricator  Dept. 

59 

" 

"      Cock-P.  V.  Dept. 

60 

" 

"          "      Injector  Dept. 

- 
a 

Total 

CQ 

61 

Machine 

Hands,  Piece,  Brass  Valve  Dept. 

= 

62 

"      Lubricator  Dept. 

■~ 

63 

" 

"      Cock-P.  V.  Dept. 

•i. 

64 

" 

"      Injector  Dept. 

Total 

<-. 

65 

Bench  Hands,  Day,  Brass  Valve  Dept. 

66 

" 

"       Lubricator  Dept. 

67 

" 

"       Cock-P.  V.  Dept. 

68 

" 

"        Injector  Dept. 

Total 


69  Bench  Hands,  Piece,  Brass  Valve  Dept. 

70  "         "  "       Lubricator  Dept. 

71         Cock-P.  V.  Dept. 

72  "  "  "        Injector  Dept. 


Total 


Summary — Brass  Valve  Dept. 
Lubricator  Dept. 
Cock  and  Pop  Valve  Dept. 
Injector  Dept. 


Total — Brass,  Lathe  and  Bench 


*  .5 
a  -a 


73  Machine  Hands,  Day-work. 

74  "  "         Piece-work. 

75  Automatic  Machines. 


Total  Screw   Machine 


76  Machine  Hands,  Day-work. 

77  "  "       Piece-work. 


Total — Milling  Machine 


« 


78  Polishing,  Day-work. 

79  "  Piece-work. 

80  Buffing,  Day-work. 

81  "        Piece-work. 
82 


Total — Buffing  and  Polishing 

83  Testers — Finished  work. 

84  Plating. 
85 

86 
87 
88 


Total — Other  Departments 


Total — Factory  Prod.   Depts 


Total — Manufacturing  Depts. 


89  Sherardizing  Dept. 

90  Administrative  and  Selling  Depts, 


Total — Miscellaneous 


Grand  Total  of  Pay  Roll 


Form  LC2.    Analysis  of  Pay  Roll 


After  the  job  cards  of  the  several  departments  have  been 
sorted  by  workmen's  numbers  and  the  time  and  wages 
entered  on  the  pay  rolls  they  are  sorted  by  piece  and  opera- 
tion symbols  and  entered  in  cost  ledgers.  These  are  large 
loose-leaf  books,  and  there  is  a  large  number  of  them,  each 
containing  about  2000  pages.  They  are  indexed  by  depart- 
ments and  by  piece  symbols,  and  from  them  can  be  obtained 
all  the  detailed  information  of  the  labor  cost  of  each  opera- 
tion on  any  lot  of  pieces  that  has  been  worked  on. 

The  Joseph  &  Feiss  Co.  Clothcraft  Shops.  Form  JF  is 
a  multiplication  table  (here  reduced  in  size,  only  the  corner 
portions  being  shown)  devised  by  the  Joseph  &  Feiss  Co., 
of  Cleveland,  Ohio,  to  save  the  labor  of  calculation  of  wages 
due  on  piece  work.  A  separate  blank  is  printed  for  each 
piece-work  rate  used  in  the  shop.    The  labor  of  making  a 


garment  is  subdivided  to  the  utmost.  A  sewing  machine 
operator  may  be  given  a  pile  of  from  100  to  500  sleeves  to 
have  one  or  two  seams  run  on  them,  with  one  of  these  job 
tickets.  When  the  job  is  finished  the  inspector  marks  on 
the  ticket  the  number  of  pieces  done,  and  the  wage  figure  is 
seen  immediately.  The  operator's  name  and  address  are 
printed  on  the  ticket  by  means  of  an  addressograph.  If  a 
man  does  more  than  one  job  in  a  day  separate  tickets  are 
issued  each  day.  The  route  clerk  so  plans  the  work  as  to 
keep  the  number  of  tickets  or  slips  as  few  as  possible.  At 
the  end  of  the  day  the  slips  are  handed  in  and  they  are  posted 
to  the  pay  roll.  Each  operator  has  a  ruled  book  in  which 
he  records  his  earnings  each  day.  The  pay-roll  clerk 
keeps  a  yearly  pay-roll  record  giving  each  man's  daily 
earnings. 


250 


BOOKKEEPING  AND  COST  ACCOUNTING 


.No. 
In 

r>Rpt. 

n»v 

Price 

.()( )(',.-> 

Operation 

1 

00C5 

2 

on 

3 

0195 

4 

026 

5 

0325 

6 

039 

7 
0455 

8 
052 

9 
0585 

19 

065 

11 

0715 

31 

2015 

32 

203 

33 

2145 

34 

221 

35 

2275 

36 

234 

37 

2105 

38 
247 

39 

2535 

40 

26 

41 

2^95 

61 

3005 

62 

403 

63 

4095 

M 

416 

65 

4225 

66 
429 

67 

4355 

68 

442 

69 

4485 

70 

455 

71 

4615 

91 

5915 

92 

598 

93 

G045 

94 

611 

95 
G175 

96 

624 

97 

0305 

98 

637 

99 

6435 

100 
■55 

101 

6565 

121 

7805 

122 

193 

123 

7995 

124 

806 

125 
8125 

126 

819 

127 

8255 

128 

832 

129 

8385 

130 

645 

131 

8515 

451 

2.9315 

452 
2.938 

453 
2.9445 

454 

2.951 

455 

2.9675 

4S6 
2.964 

457 

2.9705 

458 
2.977 

459 

2.9835 

4(.0 
2.99 

461 

2.9965 

481 

3.1265 

482 
3.133 

4»3 
3.1395 

484 
3.146 

485 
3.1525 

486 

3.159 

487 

1.1055 

488 
3.172 

489 

3.1785 

490 

3.135 

491 
3.1915 

■ 

Slipo 

20 
13 

21 
1365 

22 

143 

23 

1495 

24 
156 

25 

1625 

26 

169 

27 

1755 

28 
182 

29 

1885 

30 

196 

50 

325 

51 

3315 

52 
338 

53 
3445 

54 

361 

55 
3575 

56 

364 

57 
3705 

58 
377 

59 

3835 

60 

39 

80 

52 

81 

6265 

82 

633 

83 

5396 

84 

546 

85 
5525 

86 

559 

87 
5655 

88 
572 

89 
5785 

90 

686 

no 

716 

111 

7215 

112 

728 

113 

7345 

114 
741 

115 

7475 

116 

754 

117 

7605 

118 

7G7 

119 

7735 

120 

78 

140 

91 

141 

91G5 

142 

923 

143 

9295 

144 

936 

145 
9426 

146 

949 

147 

9555 

148 

9G2 

149 

0685 

150 

976 

470 

3.055 

471 

3,0016 

472 

3.068 

473 

.3.D745 

474 

3.081 

475 
3.0875 

476 

3.094 

477 
3.1005 

478 

3,107 

479 

3,11*15 

480 
3.12 

500 

3.25 

Form  JF.     Piece  Work  Job  Ticket.     The  Joseph  &  Feiss  Co.     (Size  8x5  in.) 


The  author  wishes  here  to  express  his  thanks  to  Messrs. 
Joseph  &  Feiss  for  the  courtesies  extended  in  his  visit  to 
their  shop  and  his  gratification  in  seeing  the  evidences  of  their 
success  in  handling  the  labor  problem  in  such  a  way  as  not 


only  to  increase  wages  and  at  the  same  time  to  decrease  pro- 
duction costs,  but  also  to  greatly  reduce  the  "  labor  turnover," 
that  is,  the  percentage  of  the  total  working  force  replaced 
during  the  year. 


(Sfce     a  xS%in.) 
To. 

REPORT  OF  DELAYS 

Shop.                                  Date 

.191 
Turn. 

Number  of 
Machine 

Electrical 

Mechanical 

Hydraulic 

Nature  of  Delay 

Hrs. 

Mm. 

Hrs. 

Min. 

Hrs.  |        Mln. 

Hrs. 

Mln. 

VI 

ruled  lines) 

.     - 

Note:-Report  fully  and  accurately. 

Foreman 

Form  W23. — Report  of  Delays. — (Albert  Walton) 


Mr.  Walton  says  of  this  form :  Of  value  especially  in  a  shop 
operating  high-priced  machine  tools,  but  like  all  such  reports 
it  is  useless  unless  followed  up;  in  other  words,  when  there 
has  been  a  delay  that  was  avoidable  something  should  happen, 
otherwise  it  is  of  no  use  to  report  it. 

In  cases  where  the  work  is  upon  special  contracts  and  the 


work  not  standard,  consideration  must  be  given  to  the  time 
within  which  each  department  must  do  its  share  of  the  work, 
calculating  from  the  given  delivery  date.  This  time  should 
be  entered  upon  the  Special  Stock  Tracing  and  Cost  Sheet. 
The  cost  entries  are  made  from  the  workmen's  time  tickets. 
The  headings  of  the  column  of  the  sheet  are  as  follows: 


Operation. 


Quantity. 


Depart- 
ment. 


Date 
Delivered. 


Should  be 
Finished  by 


Date 
Returned. 


Time 
Consumed. 


Hrs.      Min. 


Bonus 
Time. 


Hrs.      Min 


Actual 
Labor 
Cost. 


Work- 
man. 


Machine 
No. 


No.  of 
Pieces 
Lost. 


Why. 


.Form  CC— Special  Stock  Tracing  and  Cost  Sheet.— (C.  U.  Carpenter) 

Other  items  on  the  sheet  are:  Total,  Order  No.,  Material,  Purchase  Requisitions 3 

Weight,  Cost,  Name  of  Stock,  Total  Cost,  Box  No.,  Date,  Purchase  Orders 3 

Should  be  finished  by.  Report  of  Material  received 3 

Other  Forms.  Elbourne,  Factory  Administration  and  Ac-  Stock  Record— Raw  Material 3 

counts,  gives   145  "Routine  Forms  to  assist  the  reader  in  Production  Order 5 

settling  routines  to  suit  his  own  particular  forms,  and  pos-  Material  Requisition 3 

sibly  to  guide  him  in  designing  his  own  forms."     Each  form  Bill  of  Material 1 

is  accompanied  by  an  explanation  of  its  use.  Report  of  Material  delivered 2 

Nicholson,    Factory   Organization    and   Costs,    gives   73,  Time  Tickets 5 

which  are  classified  as  below  with  the  number  of  different  Payroll  and  Labor  Distribution  Sheet 7 

Styles  in  each  class:  Production  Reports 2 


REPORTS  TO  STOCKHOLDERS;  EDUCATION   OF  ACCOUNTANTS,  ETC. 


251 


Stock  Records — Finished  Product 3 

Cost  Records 6 

Defective  Work  Reports 1 

Statement  of  Factory  Expenditures 2 

Operating  Ledger 1 

Billing  Systems 2 

Register  of  Sales  and  Costs 6 

Accounts  Payable  Voucher 1 

Register  of  Accounts  Payable 3 

Check  Voucher 2 

Cash  Systems 2 

Drawings,  Pattern  and  Equipment  Records .  .  4 

Monthly  Financial  Reports 3 

BIBLIOGRAPHY 

Books  on  Cost  Accounting. — The  first  important  book 
published  in  the  United  States  describing  the  modern  sys- 
tem of  cost  accounting  was  that  of  Captain  Henry  Metcalfe, 
U.  S.  A.,  the  first  edition  of  which  appeared  in  1885.  It 
is  still  a  standard  work  and  is  now  in  its  third  edition.* 
It  contains  reprints  of  Mr.  Oberlin  Smith's  paper  on  "No- 
menclature of  Machine  Details,"  read  before  the  American 
Society  of  Mechanical  Engineers  in  1881,  and  of  Captain 
Metcalfe's  paper  on  "  The  Shop  Order  System  of  Accounts," 
read  before  the  same  society  in  1886.  The  book  describes 
at  length  the  organization  of  the  United  States  Arsenals 
and  their  old  and  unsatisfactory  methods  of  bookkeeping. 
The  author  proposes  a  new  system,  based  on  cards  instead 
of  books,  which  is  the  foundation  of  the  best  systems  that 
are  now  in  common  use.  It  includes  order,  labor,  material 
(or  service),  requisition  and  correspondence  cards,  abbre- 
viations and  symbols,  signatures  by  punching,  stamps, 
racks,  pigeon-holes,  trays,  methods  of  sorting  cards,  and 
of  making  journal  and  ledger  entries.  Forms  HM1  and  2, 
page  93,  are  reproductions  (greatly  reduced  in  size)  of  two 
of  Captain  Metcalfe's  cards. 

Between  the  years  1900  and  1917  Engineering  Magazine 
made  a  specialty  of  publishing  articles  on  cost  accounting 
and  scientific  management,  many  of  which  were  afterwards 
published  in  book  form.  From  1908  to  the  present  time 
many  other  books  on  these  subjects,  and  on  accounting  in 
general,  have  appeared.  The  following  list  contains  most  of 
them: 

The  Complete  Cost  Keeper.  H.  L.  Arnold.  Some  original 
systems  of  shop  cost  accounting.  Advantages  of  account 
keeping  by  means  of  cards  instead  of  books.  3d  edition. 
Eng.  Mag.  Press,  1903.  Describes  systems  used  by  Strieby 
&  Foote,  Hyatt  Roller  Bearing  Co.,  De  Laval  Sepa- 
rator Works,  Struthers,  Wells  &  Co.,  National  Switch  & 
Signal  Co. 

Practical  Cost  Accounting  for  Accountant  Students.  Clinton 
E.  Woods.  2  vols.,  6X8f  in.,  119  and  258  pp.  Uni- 
versal Business  Institute,  New  York,   1908. 

The  Proper  Distribution  of  Expense  Burden.  A.  Hamilton 
Church.  5^X7!  in.,  pp.  116.  Engineering  Magazine  Co., 
New  York,  1908. 

♦The  Cost  of  Manufactures  and  the  Administration  of  Work- 
shops, Public  and  Private.  By  Captain  Henry  Metcalfe,  Ordnance 
Department,  U.  S.  A.  (Retired).  Third  Edition,  1907.  6X9j  in. 
pp.  366.     New  York,  John  Wiley  &  Sons. 


Accounts,  Their  Construction  and  Interpretations.  W.  M.  Cole. 
Houghton,  Mifflin  &  Co.,  Boston,  1908,  pp.  345. 

Factory  Organization  and  Costs.  J.  Lee  Nicholson.  Half 
leather,  8jXllj-  in.,  pp.  410.  Kohl  Technical  Publishing 
Co.,  New  York,  1909. 

The  Cost  of  Mining.  James  Ralph  Finlay.  McGraw-Hill 
Book  Co.,  New  York. 

Cost  Keeping  and  Management  Engineering.  A  treatise  for 
engineers,  contractors  and  superintendents  engaged  in  the 
management  of  engineering  construction.  H.  P.  Gillette 
and  R.  T.  Dana.  M.  C.  Clark  Publishing  Co.,  Chicago, 
1909. 

Production  Factors  in  Cost  Accounting.  A.  Hamilton  Church. 
Eng.  Mag.  Co.,  1910,  pp.  187. 

Cost  Keeping  for  Manufacturing  Plants.  S.  II.  Bunnell. 
D.  Appleton  &  Co.,  New  York,  1911.  Good  description  of 
machine-hour  rule. 

Factory  Costs.  By  F.  E.  Webner.  Cost  Accounting  Specialist. 
New  York,  1911.     Ronald  Press  Co.,  pp.  611. 

Cost-keeping  and  Scientific  Management.  Holden  A.  Evans. 
McGraw-Hill  Book  Co.,  New  York,  1911,  pp.  260. 

Lecture  Notes  on  Business  Administration.  Alex.  C.  Hum- 
phreys. 6X9 j  in.,  pp.  565.  Published  by  Stevens  In- 
stitute of  Technology,  Hoboken,  N.  J.,  1912.  (Especially 
good  on  Depreciation.) 

Applied  Methods  of  Scientific  Management.  F.  A.  Parkhurst. 
John  Wiley  &  Sons,  1912,  pp.  325.  Contains  numerous 
forms  used  in  timekeeping,  storekeeping  and  cost  accounting, 
also  a  discussion  of  different  methods  of  wage  payment. 

Factory  Accounts.  C.  E.  Hathaway  and  J.  B.  Griffith.  Amer- 
ican School  of  Correspondence,  Chicago,  1912,  pp.  208. 

Cost  Accounting  Theory  and  Practice.  J.  Lee  Nicholson.  The 
Ronald  Press  Co.,  New  York,  1913,  6X9  in.,  pp.  S41.  With 
numerous  forms  and  diagrams. 

The  Science  of  Accounts.  A  presentation  of  the  underlying 
principles  of  modern  accounting.  H.  C  Bentley.  Ronald 
Press  Co.,  New  York,  6\  X9£  in.,  pp.  393. 

Cost  Reports  for  Executives  as  a  Means  of  Plant  Control.  B.  A. 
Franklin.     Eng.  Mag.  Co.,  pp.  149. 

A  Method  of  Determining  Costs  in  a  Cotton  Mill.  H.  W. 
Nichols.  E.  Anthony  &  Sons,  New  Bedford,  Mass.,  1915, 
6X9  in.,  pp.  115. 

General  Factory  Accounting.  F.  H.  Timken,  Efficiency  Engr. 
Trade  Periodical  Co.,  Chicago,   1914,  pp.   171. 

Efficient  Cost  Keeping.  E.  St.  Elmo  Lewis.  Burroughs 
Adding  Machine  Co.  3d  edition,  Detroit,  1914,  5JX7i  in. 
pp.  256. 

Auditing  and  Cost  Finding.  Seymour  Walton  and  Dexter  S. 
Kimball.  5|X9  in.,  pp.  480.  Alexander  Hamilton  In- 
stitute, New  York. 

Problems  in  the  Principles  of  Accounting.  W.  M.  Cole.  Har- 
vard University  Press,  Cambridge,  Mass.,  1915,  6X9  in., 
pp.  102. 

Predetermination  of  True  Costs.  Frederic  A.  Parkhurst. 
6X9i  in.,  pp.  96.     John  Wiley  &  Sons,  New  York,  1916. 

Cost    Accounting    and    Burden    Application.     By    Clinton    H. 
Scovell.     5^X8  in.,  pp.  328.      D.  Appleton  &  Co.,  New 
York,  1916. 
How  to  Find  Factory  Costs.     C.  Bertrand  Thompson.     6jX9| 

in.,  pp.  191.     A.  W.  Shaw  Co.,  Chicago,  1916. 
Shop   Expense   Analysis  and   Control.     Nicholas   Thiel   Ficker. 

Eng.  Mag.  Co.,  1917,  6X9  in.,  pp.  236. 
Cost  Accounting  for  Oil  Producers.     Clarence  G.  Smith.    Bulle- 
tin  158  of  the  U.   S.   Bureau  of   Mines,    1917.     Pamphlet, 
6X9  in.,  pp.  123. 

The  following  works  deal  entirely  with  English  practice  which, 
in  many  respects,  differs  widely  from  the  American: 

Factory  Accounts.  Garcke  &  Fells.  6th  edition,  1911.  Crosby, 
Lockwood  &  Son.     Deals  with  principles. 


252 


BOOKKEEPING   AND   COST  ACCOUNTING 


Factory  Administration  and  Accounts.     Edward  T.  Elbourne. 

Large  8vo,  6jX9J  in.,  pp.  638.    Longmans,  Green  &  Co., 

London,  1914. 
Advanced  Accounting.     L.  R.  Dicksee.     Gee  &  Co.,  London. 
Accounting  Theory  and  Practice.     George  Lisle.     Wm.  Green  & 

Sons,  Edinburgh. 

Books  on  Scientific  Management  and  Industrial 

Engineering 

Profit  Making  in  Shop  and  Factory  Management.     Chas.  U. 

Carpenter.     Eng.  Mag.  Co.,  1908,  pp.  146. 
Factory     Organization     and    Administration.     Hugo     Diemer. 

Eng.  Mag.  Co.,  1910. 
Principles  of  Industrial   Management.     John  C.   Duncan.     D. 

Appleton  &  Co.,  New  York,  1911. 
The    Principles   of   Scientific    Management.     Fred   W.    Taylor. 

Harper  &  Bros.,  New  York,  1911,  pp.  77. 
Shop  Management.     Fred.  W.  Taylor,  with  an  introduction  by 

Henry    R.    Towne.     Harper    &    Bros.,    New    York,    1911, 

pp.  207. 
Motion  Study.     A  method  for  increasing  the  efficiency  of  the 

workman.     Frank    B.    Gilbreth.     D.    Van    Nostrand    Co., 

New  York,  1911,  pp.  116. 


Primer  of  Scientific  Management.     Frank  B.  Gilbreth,  with  an 

introduction  by  Louis  D.  Brandeis.     D.  Van  Nostrand  Co., 

1912,  pp.  108. 
Efficiency  as  a  Basis  for  Work  and  Wages.     Harrington  Emerson. 

Eng.  Mag.  Co.,  pp.  171. 
Work,  Wages  and  Profits.     Henry  L.  Gantt.     D.  Appleton  & 

Co.,  New  York,  1916,  pp.  328. 
Industrial  Plants.     Charles  Day.     Eng.  Mag.  Co.,  1911,  pp.  234. 
Maximum  Production  in  Machine  Shop  and  Foundry.     C.  E. 

Knoeppel.     Eng.  Mag.  Co.,  1911,  pp.  400. 

The  Human  Factor  in  Works  Management.  James  Hartness, 
McGraw-Hill  Book  Co.,  New  York,  1912,  pp.  200. 

The  Psychology  of  Management.  The  Function  of  the  Mind  in 
Determining,  Teaching  and  Installing  Methods  of  Least 
Waste.  Lillian  M.  Gilbreth.  Sturgis  &  Walton  Co.,  New 
York.     8vo,  2d  edition,  1917.     $2.50. 

Fatigue  Study:  A  First  Step  in  Motion  Study.  Frank  B. 
Gilbreth  and  L.  M.  Gilbreth.  Sturgis  &  Walton  Co.,  1917. 
12mo.     $1.60. 

Applied  Motion  Study.  Frank  B.  Gilbreth  and  L.  M.  Gilbreth. 
Sturgis  &  Walton  Co.,  1917.     12mo,  pp.  220.     $1.60. 


Red  Tape  of  the  Interstate  Commerce  Commission. 
The  price  of  a  round-trip  ticket  between  Los  Angeles  and 
Pasadena  is  25  cents.  If  the  return  coupon  is  not  used  within 
ten  days  after  the  printed  date  of  the  outbound  ticket  the 
conductor  will  refuse  to  receive  it  and  tells  the  passenger  that 
he  can  get  a  refund  of  10  cents  for  it  on  presentation  at  the 
ticket  office  in  Los  Angeles.  When  it  is  presented  the  refund 
clerk  carefully  fills  out  a  blank  form  with  a  description  of  the 
ticket  which  the  passenger  signs  with  his  name  and  address, 
and  then  gets  the  10  cents.  In  case  the  conductor  has  in- 
advertently punched  the  ticket  before  handing  it  back  to  the 
passenger  the  clerk  refuses  to  receive  it,  but  states  that  it 
may  possibly  be  redeemed  in  the  Traffic  Manager's  office 
up-stairs.     In  that  office  the  clerk  fills  out  a  claim  blank, 


which  the  passenger  signs;  then  he  fills  out  a  check-book 
stub  and  a  regular  bank  check,  printed  on  safety  paper, 
which  the  passenger  may  deposit  in  his  own  bank  or  collect 
it  from  the  refund  agent  as  he  may  prefer.  The  bank  check 
is  reproduced  below.  The  agent  explained  that  the  Railway 
Co.  was  not  to  blame  for  this  red  tape,  as  it  was  enforced  on 
the  Company  by  the  Interstate  Commerce  Commission. 

Several  better  ways  of  transacting  this  business  may  be 
suggested.  The  tickets  might  be  marked  "  good  until  used," 
or  "  not  good  after  30  or  60  days,"  and  in  that  case  the  con- 
ductor might  be  authorized  to  receive  the  ticket  as  good  for 
10  cents  in  part  payment  of  a  single  fare,  15  cents,  or  of  a 
round-trip  ticket,  25  cents. 


5i^v  Form  5451 

KWm\     PACIFIC  ELECTRIC  RAILWAY  COMPANY 

Traffic  Department 


In  settlement  of-  Claim  for  Refund  of  Fare  Filed  with  this  Con 
If  Presented  for  Payment  within  Ninety  (90)  Days  from  Date  Her 

THIS  DRAFT  NOT  VALID  IF  DRAWN \E0ftMflftE  THAN  FIFTY  D0LLAR8 

qllect  through  Farmers  &  Merchants  National  BanJct^Los^Afigeles,  Cat. 

ble  only  when  Countersigned  by  D.  W.  PONTIUS,   ur  *•  E>  GlanCy 

'o,  A.  SMITH,  or  H.  D.  PRIEST, 


Traffic  Manager. 


j^eto  l^orfe  {Erttmne    april 


20,    1917 


(By  permission) 


Airit  It  a  Grand  and  Glorious  Feelin? 


By  BRIGGS 


AFT5R      You    HA\>E    BegnJ 
VJoRKtrJG      OM     A 

Trial.  "BAUAtfJce. 


amD    Vbu    vajork  ovERTd^e 
TTajo    or  Three    mights    and 

ThinIGS      LOOK     "BLUE 


AMD      SuMMiMG    UP     FlMD 
That     The    THING 
Does    NOT    Balance 


-  |F    ALL    of    a   SvjPDEK 

You    AtClDEMTALLV      TURM    OVER 
A    PAGE  -ADD      UP     A    COLUMN 

-Amd     FIMD    The     ERROR  ?? 


An/D      VoU    6ETTLE      DOvvm 
FOR     A       LOfJG     HUMT 
Through     Pages    and  vaGES 


OW-h  «  Ain't    it    a 


AMD 

Glor-e 

Yus 


Ciei/eL*""} 


Rather  undignified  for  a  serious  book,  but  "  a  little  nonsense  now  and  then  is  relished  by  the  wisest  men." 
This  man  did  not  use  the  self-balancing  Column  Ledger. 


253 


TOPICAL   INDEX 


PAGE 

Account  Current:  Account  Sales 12 

Accounts,  Classification  of.  .12,  131,  152,  170 

Accounts  for  Retail  Merchants 22 

Accounts  in  a  Printing  Shop,  Titles  and 

Definitions 219,  223 

Accounts  Receivable 8,  14 

Payable 8,  14 

Titles  and  Definitions  of 6,  23 

Accountant    and     Efficiency    Engineer, 

Relation  between 5 

Accountant,  Technical  Experience  Nec- 
essary    241 

Accounting,  Statistics  and  Costs  Depart- 
ments Separated 19.5 

Accounting  Code 12,  39,  45 

Accounting,  College  Education  in 240 

Accounting  System,  a  Simple 41 

Accounting  System,  Condensed 32 

Accounting  System.  Diagram  of 103 

Accounting  System  for  a  Steel  Works.  .    151 
Accounting  System  in  a  Hardware  Fac- 
tory     180 

Accounting  System,  Starting  a 50 

Accounting  versus  Cost  Keeping 49 

Accrued  Expenses 1 1 ,  56 

Adjustment  Account,  Material.  . .  .    153,  189 

Adjustment,  Profit  and  Loss 30,  44 

Advance  Payments,  Accrued  Expenses  .  1 1 
Aluminum  Foundries,  Cost-finding  in..  .  172 
American  Telephone  and  Telegraph  Co., 

Report  of 237 

Amortization  (see  Depreciation  Reserve). 

Amortization  of  Power  Plant 88 

Appraisal       and       Perpetual-inventory 

Values 89 

Appraisals,   Depreciation  for  Insurance 

Purposes 91 

Appraisals  of  Manufacturing  Property..      91 

Arsenals,  Causes  of  High  Cost  in 112 

Assets  and  Liabilities 39 

Auditor's  Report 44,  46 

Axioms  Concerning  Costs 127 


Bakery,  Costs  Account  for  a 206 

Balance  of  Stores 54 

Balance  Sheet 20,  23,  27,  32,  163 

Balance  Sheet,  Commercial  and  Factory 

Ledgers 96 

Balance  Sheet,  General  Ledger.  .  . .  198,  200 
Balancing  Bills  Receivable  and  Payable     10 

Balancing  Property  Accounts 11 

Bell     Telephone     System,     Report     to 

Stockholders 237 

Benefactor  to  the  Race,  a 124 

Betterment  Accounts 45 

Bibliography 251 

Bill  Book 9,  15 

Bills,  Payment  of 2 

Receivable  and  Payable 9 


PAOE 

Blacksmith  Shop  Costs 70 

Blank  Forms  (see  Index  of  Forms) 259 

Blast  Furnace,  Weekly  Report  of Ill 

Blotter  or  Day  Book 3 

Books  on  Cost  Accounting 251 

Bookkeeper,  Accountant  and  Engineer.        5 

Bookkeeper,  Work  of 195 

Bookkeeping  at.  an  Iron  Blast  Furnace.  140 
Bookkeeping    at    a    New    Jersey    Blast 

Furnace 143 

Bookkeeping  by  Machinery 135 

Bookkeeping,  Elementary  Principles.  .  .        1 

Single  and  Double  Entry 2 

Bonds  and  Stocks,  Investment  in 11 

Bonus,  Effect  of  on  Profits 59 

Method  of  Figuring 58 

Bonus  System  of  Wages 124 

Brass,  Bronze,  and  Aluminum  Foundries 

Cost-finding  in 172 

Burden  Charging,  a  Problem  in 77 

Burden,  Example  on  Three  Machines.  .      72 
Example  of  Department  and  Class. .  .      73 

Burden,  Distribution  of 34,  36,  46,  65 

Supplementary  Rate 46,  77,  78 

Burden  Distribution  Book 55 

Burden  Distribution  in  a  Printing  Shop.  213 
Burden  Distribution  in  a  Woodworking 

Shop 204 

Burden  Distribution  in  Column  Ledger. .      98 
Burden  Distribution,  Error  of  Old  Meth- 
ods of 112 

Burden  Distribution,   various  methods, 
viz: 

Percentage  on  Direct  Labor 65 

Man-hour  Method 65 

Department  Method 66 

Class  of  Product  Method 67 

Machine-hour  Rate 67,  150 

Modified  Machine  Rate 69 

Job  Rate 69 

Department  and  Class  of  Product.  .  .      72 

Burden  fallacies 80 

False  and  correct  theories  of 80,   81 

Burden  in  Minor  Departments,  viz: 

Blacksmith  Shop 70 

Carpenter  and  Paint  Shop 70 

Foundry 71 

Polishing  and  Plating 71 

Grinding  Room 72 

Burden,  Last  Word  on 81 

Standard,  per  Unit  of  Product. ......      81 

Burden,  Machine-shop,  Calculation  of . .     68 

Normal  or  Standard 72,  75 

Table 70 

Burden  Rates,  Comparison  of.  .63,  67,  72,  73 
Burden,  Supplementary  Rate  Method . .  78 
Burden,  Unearned  and  Overearned. .  .117,  243 

Business  Expense 194 

Business  Expense,  Distribution  of.  .  200,  202 
Business  Expense,  Error  of  Charging  to 

Cost 202 

255 


By-products,  calculation  of  profits  from   109 
By-products,  Difficulties  in  Costing   ins,  149 

C 

Calculating  Machines Lis 

Capital  Stock 6 

Card  Holder,  Walton's 151,  167 

Card  Ledger 1 

Cards  for  Production  and  for  Costs.  .  .  .      55 

Cards  used  instead  of  Books 93 

Carpenter  Shop  Costs 70 

Cash  Book 1,13 

Discount  and  Interest  Column  in. ...      14 

Cash  Book,  Sample  of 141 

Chart  of  Iron  Works  Statistics 106 

Charting  of  Costs 103 

Charting  of  Statistics 103 

Check  Register 54 

Church,    A.    Hamilton,    Supplementary 

Rate 7S 

Classes  and  Departments  in  Hardware 

Factory 180 

Classification  of  Accounts 12,  131 

Clerical  Work  on  Tickets 60 

Coal,  Cost  and  Price  of 178 

Code  for  Accountants 12,  39.  45 

College  Education  in  Accounting 240 

Column  Cash  Book 15 

Journal 15 

Column  Ledger 17,  29,  31,  40 

Column  Ledger,  Advantages  of 95 

Commission  Business 12 

Company  Books  separate  from  Factory-      35 

Company  or  Private  Ledger 36,  40,  45 

Comparative  Cost  Record  Card,  Form 

NM.  2 100 

Condensed  Accounting  System 32 

Consignment  Accounts 12 

Controlling  Accounts 8,  121 

Corporations,  Reports  to  Stockholders  of  237 

Cost  Accountant,  Functions  of  the 122 

Cost  Accountant,  the  Chief 122 

Cost  Accounting 49 

Cost  Accounting  in  a  Woodworking  Shop  203 
Cost  Accounting  in  Government  Shops 

92,  94 

Cost  Accounting,  Old  School 140 

Cost    Accounting,    Problems    and    Dif- 
ficulties   60,  77,  108 

Cost  Accounting,  Textile 206 

Cost  Accounting  for  a  Bakery 206 

Cost  and  Price  of  Coal 178 

Cost   and   Value   of   Disks   Made   from 

Scrap 108 

Cost  Cards,  Piece  and  Finished  Product     55 

Cos»-collecting  Cards 194 

Cost,  Definition  of 121 

Cost  Estimates  in  a  Woodworking  Shop  205 

Cost  Factor,  Relative 193 

Cost-finding  by  the  Time-study  Method  204 
Cost  Finding  in  Brass  Foundries 172 


256 


TOPICAL  INDEX 


Cost-finding  Methods 57,  60 

Cost  Formula,  Emerson's Ill 

Cost,    high,    of    Work    in    Government 

Shops j  12 

Cost  Keeping  in  a  Rolling  Mill 150  j 

Cost  Keeping,  Objects  of 120 

Cost  Keeping  versus  Accounting 49 

Cost  of  Idleness 105 

Cost  of  Iron  when  By-products  are  made  149 

Cost  of  Operation  of  Power  Plants 20S 

Cost  of  Pig  Iron 145 

Cost  of  Silver HO 

Cost  Periods,  Weekly  and  Monthly 100 

Cost,  post-mortem 49,  53 

Cost  Statement  of  a  Foundry 173,  174 

Cost  Statistics,  Conclusions  from 120 

Cost  Summary,  Finished  Product 113 

Cost  System,  Reducing  the  Cost  of .  .  .  .  112 
Cost  System  Separate  from  Accounting 

System,  Advantages  of 149 

Cost  Systems  that  Failed 126 

Cost  Systems,  Bad 126 

Cost  System,  Devising  a 123 

Cost  System,  Functions  of  the 95 

Cost,  System,  Objects  of  a 109 

Cost  System,  Bookkeeping  not  a  Proof  of  198 
Cost  System  for  Printers,  a  Standard..  .  216 
Cost  Systems  in  Government  Shops. ...      92 

Cost  System,  Investigation  of  a 114 

Cost  System,  Modification  of 115 

Cost  and  Efficiencies  in  Power  Plants.  .    211 

Costs,  Axioms  Concerning 127 

Costs,  Causes  of  too  high 112 

Costs,  charting  of 103 

Costs,  Commercial,  have  no  relation  to 

Factory  Costs 127 

Costs,  Curves  of  Standard 210 

Costs,  Determination  of,  by  Estimates.    185 

Costs,  Factory,  Uses  of 109,  120 

Costs,  Foundry 171 

Costs,  How  to  Reduce Ill 

Costs  in  a  Printing  Shop 213 

Costs  of  Labor  and   Material   without 

Burden 76 

Costs,  Original  and  Revised 187 

Normal 3g 

Costs,  Predetermination  of Ill 

Costs,  Predetermined : 126 

Recorded 35 

Costs,  Standard HI 

Costs,  Standard  in  Power  Plants 210 

Costs,  Subdivisions  of 127 

Costs  tied  to  the  General  Books 146 

Costs,  Uses  of 49 

Costs,  Uses  of  and  Opinions  on 120 

Costing   Difficulties  when   By-products 

are  Made 10s 


Depreciation,  definition  of 86 

Depreciation    due    to    Obsolescence    of 

Product jig 

Depreciation,    Effects    of    at    Different 

Rates,  Tabie ss 

Depreciation,  Four  Methods  of  Calculat- 
es      S6 

Depreciation,  Need  of  a  Rule  for 89 

Depreciation   not   properly   determined 

by  Appraisal  Companies gg 

Depreciation,    Relation    of    to    General 

Expense gg 

Depreciation,       Standard       Rates      of, 

adopted  by  Manufacturers 90 

Depreciation  Table 87,  88 

Diagram  of  Annual  Exhibit,  Fig.  2 104 

Diagram  of  the  Accounting  System ....    103 

Discount  Column  in  Cash  Book 14 

Discount  on  Purchases 6 

Disks  made  from  Scrap,  Cost  of 108 

Distribution  of  Burden  (see  Burden). 

Dividend g  45 

Double-entry  Bookkeeping 2 

E 

Education  of  Accountants 240 

Efficiency  Engineer  and  the  Accountant       .5 
Efficiency,  not  measured   by  low  ratio 

of  non-productive  labor 112 

Engineering,  Industrial,  Books  on 252 

Elapsed  Time  Recording  Machine 138 

Equipment,  Record  of 133 

Errors,  checking  of 20 

Establishment  Expense  (see  Burden)..  .   241 

Estimate  of  Present  Cost 1S6 

Estimates,    Cost,    and    Cost    Records, 


PAGE 

Flow  of  Values,  the 124 

Forms,  Caution  in  Regard  to  Use  of.  .  .    178 

Forms  Used  in  a  Foundry 175 

Forms  used  in  a  Hardware  Factory .    180-192 

Forms  used  in  Printing  Shops 214-236 

Forms  used  in  a  Machine  Shop 192 

Formula  for  Costs,  Emerson's Ill 

Formulas  for  Profit  and  Loss 33 

Foundry,  Burden  Distribution  in 71 

Foundry  Costs 171 

Foundry  Reports,  Monthly 173 

Fundamentals   of   a    Cost   System,    by 

Federal  Trade  Commission 94 

Functions  of  the  Cost  Accountant 122 


Gantt,  H.  L.,  Idleness  Chart 105 

General  Charges,  Distribution  of 98 

General  Electric  Co.,  Report  to  Stock- 
holders     238 

Government  Arsenals,  Causes  of  High 

Cost  in 112 

Government  Shops,  Cost  Systems  in .  92,  94 
Graphical  Presentation  (see  Chart) .  .  103,  106 
Grinding  Room,  Costs  in 72 


Hardware  Factory,  Accounting  System .    180 
Hollerith  Tabulating  System 135,  182 


I 


206 


Textile 

Estimates    of    Cost    when    By-products 

are  Made jqs 

Exception  Principle,  The 103 

Expense  (see  also  Burden). 

Expense  Accounts 1 1 

Distribution 33 

Expense  Accounts,  Subdivision  of 180 

Expense,  Business,  Distribution  of.  .200,  202 

Expense  Distribution  Sheet 194,  199 

Expense  Supplies 45 

Expenses,  "  Writing  Off." 237,  238 

Experiments,  Cost  of 128 

Expert,  Work  of  the 114 


Daily  Record  of  Work  in  Progress 99 

Day  Book  or  Blotter 3 

Debit  and  Credit 1,2 

Debtor  and  Creditor 1,2 

Deferred  Profit  and  Loss  Items 32 

Departments  in  a  Hardware  Factory. . .   180 

Depreciation 28,  30,  47,  118,  238 

Depreciation   and   Repairs,    Method   of 

Treating 85,  157 

Depreciation   Appraisals   for   Insurance 

Companies 91 


Factory  Accounting 35 

Accounts,  Subdivision  of 36 

Books  Separate  from  General  Books. .      35 

Operation  Account 35 

Products,  Continuous,  Single,  Varied.     35 

Factory  Books,  Opening  a  Set  of 37 

Cost  and  Selling  Prices 33 

Journal  and  Ledger  Entries 38 

Ledger 41,  45 

Factory  Ledger,  Condensed 98 

Factory  Orders  (see  Orders) 50 

Fallacy  of  the  Old  School  of  Account- 
ants      80 

False  Theory go 

Federal  Trade  Commission's  System: 

for  Retail  Merchants 22 

for  Factory  Costs 94 

Filing  and  Indexing 134 


Idleness,  Cost  of 105,  241 

Idleness  Chart,  H.  L.  Gantt's 105 

Improvements  suggested  in  Trade  Com- 
mission's System 28 

Income  or  Profit  and  Loss  Statement .  .  48, 163 

Indexing  and  Filing  Cards,  Fig.  9 134 

Industrial  Engineering,  Books  on 252 

Insurance  Accounts 11,  23,  30 

Int.  rest  Account 10 

Interest  Charged  to  Cost,  Example 128 

Interest  on  Investment  Charged  to  Cost  128 

Interest,  Rate  of,  Charged  to  Cost 128 

Interlocking     the     Cost     and     General 

Accounts 124 

Inventory 43 

Inventory,  Annual,  Method  of  Taking.    188 
Inventory,  Checking  the  Continuous.  . .     53 

of  Partly  Finished  Work 53 

of  Warehouse  and  Stores 53,  180 

Perpetual 55 

Inventory,    Perpetual,    Value    of,    and 

Appraisal  Value 89 

Inventory,     Estimate    of    Increase    or 

Decrease  of 129 

Inventory  Values  differ  from  recorded 

costs Hg 

Inventory  of  Tools,  Form  N  1 134 

Inventory  Increase  and  Profit  and  Loss 
Estimates  without  an  Actual  In- 
ventory      189 

Investments  in  Bonds  and  Stocks 11 

Invoice  Book,  Invoice  Ledger 4 

Register 14 

Iron  Foundry,  Cost  of  Castings 171 

Iron  Works  Bookkeeping 140 

Iron  Works  Statistics 106,  146 

J 

Job,  Definition  of 62 

Job  Orders,  Job  Tickets 50,  54 


TOPICAL  INDEX 


257 


PAGE 

Job  and  Time  Tickets,  Combined..  .   57,  113 

Job  Tickets,  Use  of 57,  59 

Job  Tickets,  Information  on 61,  63 

Sorting  and  Filing  of 64 

Journal  Entries  at  a  Blast  Furnace 143 

Journal,  The 3,  15 

Journal  Entry  of  Pay  Roll  Distribution.   184 

Journal-Ledger,  Advantages  of 95 

Journal-Ledger,  Combined  (see  Column 
Ledger). 

Journal-Ledger  Entries 1(11 

Journal-Ledger  for  Iron  Works 148 

Journal  of  Accountancy,  Editorial  in. .  .    129 
Journalizing,  Examples 13,  IS,  25,  42 

rules  for 3 

L 

Labor  Book,  Summary  of  Pay  Roll ....  142 

Labor  Charges 50 

Labor  Costs,  Chart  of 107 

Labor,  Direct  and  Indirect 45 

Labor  Report  of  Pay  Roll,  Form  NM  5  100 

Labor-saving  Methods 2,  28 

Labor  Turnover 188,  250 

Ledger  Accounts  at  a  Blast  Furnace.  .  .  141 
And   Journal  Combined  (see  Column 
Ledger). 

Ledger  Accounts  in  a  Steel  Works 152 

Ledger 2 

Column  (see  Column  Ledger). 

Invoice 4 

Sales 4 

Safeguard 16 

Ledger,  Commercial  and  Factory 97 

Ledger,  examples  of  posting  in,  13,  18,  25,  42 
Ledger,  Factory  (see  Factory  Ledger). 
Company  (see  Company  Ledger). 

Ledger,  Iron  Works,  Monthly 147 

Ledger,  Works,  in  Hardware  Factory. .  .  184 

Liability,  Contingent 48 

Limitation  of  the  Cost  Accountant 56 

Loss  and  Gain  (see  Profit  and  Loss). 

Lot  Costs,  Textile 207 

M 
Machine-hour  Rate  for  Distribution  of 

Burden 68.  150 

Man-hour  Rate 65 

Machine  Shop  Burden,  Calculation  of .  .     68 

Machine-Shop's  Cost  System,  a 192 

Machine  Shop  Practice,  Symbols  used.  .    131 

Machines  for  Bookkeeping 135 

Machinery,  Bookkeeping  by 135 

Machinery,  Valuation  of 87 

Maintenance,' Depreciation  and  Recon- 
struction     238 

Management,  Scientific 119 

Manager  of  the  Future,  the 122 

Manufacturing  Account 37 

Marchant  Calculating  Machine 139 

Material  Adjustment  Account 189 

Material,  Procuring  and  Accounting  for 

in  Government  Shops 92 

Merchandise  Account 6,  28 

Merchandise  Returned 7 

Merchants,  Retail,  Accounts  for 22 

Merchants'  Selling  Prices 33 

Mnemonic  Symbols 131 

Monotype  Cost  and  Efficiency  Records.  222 
Monroe  Calculating  Machine 138 


PAOE 

Month,  divided  into  four  periods 181 

Monthly  Record  of  Progress 100 

Monthly  Report  of  Parts  Made 100 

Monthly  Summary  of  Business 22 

Monthly  Column  Ledger  (see  Column- 
Ledger)  . 

Expense  Ledger 31 

Statements  of  Bills 54 

Monthly  Totals  of  Journal- Ledger 101 

Mortgage  Indebtedness 11 

N 
Navy  Yard,  Brooklyn,  Cost  Accounting 

in 94 

Nomenclature  of  Machine  Details 132 

Normal  Cost 36,  146 

Notes  Receivable;   Notes  Payable 9 

O 

Obsolescence,  Depreciation  due  to  47,  85,  238 
Obsolescence   of    Product,    depreciation 

due  to 118 

Old-school  Cost  Accounting 140 

On-Cost  (see  Burden) 241 

Opening  a  Set  of  Factory  Books 37 

Operation  ( iosts,  in  Textile  Mills 207 

Orders,  Standing 50 

Office 50,  61 

Production 50 

Small 50 

Job 50,  61 

Operation 61 

Organization,  Cost  of 128 

Over,  Short  and  Damage  Account 121 

P 

Patents  and  Patent  Litigation 128 

Pay  Roll,  Accounting  Distribution  of..  .  183 

Pay  Roll,  Analysis  of,  Lunkenheimer  Co.  249 

Pay  Roll  Distribution 182 

Pay  Roll  Distribution  Voucher 248 

Pay  Roll  Periods 100 

Pay  Roll,  Subdivisions  of 51 

Pay  Roll,  Verification  of 181 

Percentage    Classification    of    Expendi- 
tures   76 

Periodograph  Time  Card 138 

Perpetual  Inventory 55 

Piece  Cost  Card 62,  113 

Pig  Iron,  Cost  of 145 

Planning  and  Scheduling  Work  for  the 

Shop 205 

Polishing  and  Plating  Costs 71 

Posting  in  Ledger,  Examples 13,  25,  42 

Post-Mortem  Cost 49,  53 

Power  Plant,  Classification  of  Expenses.  208 
Power   Plant   Operating   Costs,    Stand- 
ardization of 208 

Power  Plants,  Comparison  of  Costs  in..  209 

Power  Plants,  Protective  Charges  in.  .  .  211 

Predetermined  Costs 126 

Premium  System  of  Paying  Wages 124 

Premium  System  Regulations 166 

Prime  Cost,  Material  and  Direct  Labor.  1S5 

Printing  Shop,  Costs  in  a 213 

Private  Ledger  (see  Company  Ledger). 
Problem,   Cost  of   Steam   Engines   and 

Turbines 115 

Problem  in  Burden  Charging 77 

Problem  in  Cost  Finding 60 

Problems  and  Difficulties  in  Accounting.  108 


TAOE 

Product,  Finished,  Cost  Summary 113 

Product,  Monthly  Report  of,  Form  NM4  100 

Production  Order 54,  113 

Productive    and    Non-productive    labor, 

ratio  useless  and  misleading 112 

Profit  and  Loss  Account 4,  6 

Statement 24,  48 

Adjustment 28,  30 

Profit  and  Loss,  Estimate  of,  Monthly.    189 

Profit  and  Loss,  Formulas  for 33 

Profit  and  Loss  Statement  of  a  Printing 

Shop 221 

Profit  due  to  Increase  in  Value 52 

Profits,  Calculation  of,  from  By-products  109 

Proof  of  the  Cost  System 198 

Property  Accounts 10 

Purchase  Account 7 

R 
Ratio  of  Productive  to  Non-productive 

Labor 77,  112 

Record  of  Progress  in  a  Factory 102 

Records     of     Operations,     Daily     and 

Monthly 99 

Recorded  Cost 35 

"  Red  Tape,"  and  "Systems" 92 

Use  of 92 

Reducing  the  Cost  of  the  Cost  System..    112 

Rent  Income  Account 24 

Repairs   and    Depreciation,    Method   of 

Treating 85 

Reports  to  Stockholders  of  Corporations  237 

Requisitions  for  Material 55 

Reserve  for  Contingencies 157 

Reserve  for  Extraordinary  Repairs  .  .  85,  146 
Residuum  in  Pay  Roll  Distribution..  183 
Residuum  of  Mfg.  Acct.  Distribution  of  185 

Retail  Merchants'  Accounts 22 

Returned  Goods,  Accounting  for Inn 

Returned  Merchandise 7 

Rolling  Mill,  Cost  Keeping  in  a 150 

Rules  for  Journalizing 3 

S 

Safeguard  Ledger 16 

Sales  Account 7 

Allowances 7 

Sales  Expense  not  Part  of  Factory'  Cost  202 
Scheduling    Work    in    a    Woodworking 

Shop 205 

Scientific  Management 119,  252 

Scrap,  Cost  of  Disks  made  from 108 

Scrap,  Problem  in  Cost  and  Value  of.  .  .  108 

Scrap,  Utilization  of 108 

Selling  Prices,  Merchants' 33 

Shop  Expense  Rate 194,  201 

Single-entry  Bookkeeping 2 

Silver,  Cost  of 110 

Slippage,  difference  between  Estimated 

and  Actual  Cost 186 

Spoiled  Work,  Accounting  for 188 

Standard  Burden  per  Unit  of  Product.  .  81 

Standard  Cost Ill,  126 

Statistical  Distribution  of  Pay  Roll.  .  .  .  183 
Statistical   Records  in   a   Woodworking 

Shop 204 

Statistical  Reports  in  Hardware  Factory  188 

Statistical  Sheet,  Mfg.  Accounts 46 

Statistics,  Charting  of 103 

Statistics,  Conclusions  to  be  drawn  from  120 


258 


TOPICAL  INDEX 


PAGE 

Statistics,  Iron  Works,  Chart  of 106 

Steam  Engines,  Problem  in  Cost  of 115 

Steel  Works,  Accounting  System  for.  .  .    151 
Stock  on  Hand  and  in   Process,   Form 

NM  1 99 

Stocks  and  Bonds,  Investments  in 11 

Storekeeper's  Records 61 

Stores  Credit  Card 55 

Stores  and  Supplies 45 

Stores  Records ; 180 

Stores  System 50 

Stores  System  in  a  Machine  Shop 194 

Stores,  Valuation  of 52 

Supplementary  Rate  in  Burden  Charge. 

77,  78 

Surplus 6,  30,  48,  158 

Surplus     rather     than     Capital     earns 

Dividends 237 

Suspense  Account 10,  44,  4S 

Symbols,    Accounting    in    a    Hardware 

Factory ISO 

Symbols,  in  Machine-shop  Practice.  .  .  .    131 

Symbols,  Letters  versus  Numbers 132 

Symbols,  Mnemonic 131 

Symbols,  Qualities  of  good 133 

System-mad,  Manager,  the 92 

"Systems"  and  "Red  Tape" 92 


T 

T-    u  PAGE 

Tabulating  Machine  Record 182 

Tabulating  Machine,  Stores  Records.  . .    188 

Tabulating  System,  the  Hollerith 135 

Taxes,  Advanced  and  Accrued.  ..  .11,  23,  30 

Textile  Cost  Accounting 206 

Theory,  a  False so 

the  Correct si 

Theories  of  Costs 122 

Time  and  Job  Tickets 57 

Time  Keeping  in  a  Hardware  Factory.  .    181 
Time  Keeping  in  Government  Shops .  .   92,  94 

Time  Keeping  in  a  Machine  Shop 192 

Time-keeping  Systems 113 

Time  Studies 114,  16.5 

Time-study  Method  of  Cost-finding. .  .  .'  203 
Titles  and  Definitions  of  Accounts. 

6,  23.  152,  153 

Trading  Account 7,  24,  28 

Transfer  and  Balancing  Entries 39 

Trial  Balance,  Errors  in 4,  253 

Example 13 

Factory 39 

Turnover,  Labor 188,  250 

Turnover,  of  goods  and  of  Capital 34 

Tying-in  the  Cost  Records  to  the  General 
Accounts 124,  149 


V 

PAGE 
\  aluation  of  Machinery 87 

Valuation  of  Stores 52 

Values,  the  Flow  of 124 

Variable  Factors  of  Burden  Charge ....  66 

Volume  of  Business,  Diagram  of 104 

Voucher  Checks 54 

Voucher,  Weekly  Pay 58 

W 

Wages,  Bonus  System  of 124 

Wage  Scale,  Table 228 

Wages  Report,  Monthly 188 

Wage    System    of    Cincinnati    Milling- 
Machine  Co 124 

Warehouse  Accounts 153 

Westinghouse    Electric    &    Mfg.     Co., 

Annual  Report 239 

Woodworking    Shop,    Cost   Accounting 

in  a 203 

Worked  Material,  Accounting  for 196 

Workmen's  Yearly  Record 59 

Works  Ledger  in  Hardware  Factory .  .  .    184 

Y 

Yearly  Record  of  Workman 59 


INDEX  OF  FORMS  AND  BLANKS 


PAGE 

M  Miller  Lock  Co. 
M  1  Combined  Time  and  Job  Ticket. .     57 

2  Weekly  Pay  Voucher 58 

3  Workman's  Yearly  Record 59 

Capt.  Metcalf's  Cards  at  Frank- 
ford  Arsenal 

Service  and  Material  Cards 93 

NM  4  National  Meter  Co. 

1  Record  of  Work  in  Progress 99 

2  Competitive  Cost  Record 100 

5  Labor  Report  of  Pay  Roll 100 

W.  Sailes 
WS  1  Record  of  Individual  Equipment.   133 
H.  M.  Norris 

N  1  Standard  Plant  Ledger 134 

2  Special  Plant  Ledger 134 

Pennsylvania  Steel  Co. 
PS  1  Time  Card  of  the  Machine  Shop.    137 

2  Requisition  on  Storekeeper 137 

Schedule  of  Accounts 170 

W  Mr.  Walton's  Forms  used  in  Vari- 
ous Establishments 
W  1  Schedule  of  Parts  and  Operations   164 

W  2,  3  Requisition  Cards 164 

W  4  Store  Room  Card 164 

W  5  In  and  Out  Stock  Card 164 

W  6  Time  Study  Blank 165 

W  7  Clock  and  Time  Card 165 

W  8,  9  Job  Time  Tickets 165 

W  10  Pay-off  Slip 166 

W  11  Premium  Work 166 

W  12  Production  Card 166 

W  13  Shop  Order  Card 166 

W  14  Pattern  Cost  Card 167 

W  15  Operation  and  Part  Cost  Card. .  .    167 
W  16  Costs  of  Operations  and  Parts  at 

Different  Dates 167 

W  17  Requests  to  Foremen  to  Explain 

Increased  Cost 167 

W  18  Material  Used  from  Stock 168 

W  19  Inventory  Ticket 168 

W  20  Requisition  for  Small  Tools 168 

W  21  Tool  and  Pattern  Requisition 169 

W  22  Suggestion  Card 169 

BF  Brass,    Bronze,    and    Aluminum 
Foundries 
BF  1  Piece  Work  Card 175 

2  Piece     Rate    Card    for    Pattern 

Changes 175 

3  Daily  Molding  Report 175 

4  Daily  Casting  Report 175 

5  Core  Card 176 

6  Core  Room  Piece  Work  Report.  .  176 

7  Manufacturing  Expense  Card. ..  .  176 

8  Summaries  of  Mfg.  Expense 176 

9  Requisition  for  Supplies 176 

10  Plant  Sub-order 176 

11  Distribution  of  Items  of  Expense.   177 

12  Works  Managers'  Daily  Report..    177 

13  Metal  Requisition 177 

14  Heat  Ticket 178 


PAGE 

BF15  Metal  Report 178 

HF  Hardware  Factory 

HF  1  Balance  of  Stores  Card 180,  181 

2  Time  Summary  Ticket 181 

3  Day  Work  Credit  Ticket 181 

4  Piece  Work  Credit  Slip 181 

5  Card  for  Tabulating  Machine..  . .  182 

6  Statistical  Distribut'n  of  Pay  Roll  183 

7  Accounting  Distribut'n  of  Pay  Roll  183 

8  Cost  of  Finished  Product 186 

9  Estimate  of  Cost 187 

10  Requisition  for  Parts 191 

.1   Requisition  for  Bronze  Castings. .  191 

12  Returned  Goods  Report 191 

13  Operation  and  Route  Record.  .  . .    191 

14  Monthly  Wages  Report 188 

15, 16  Ticklers 191,  192 

17  Details  of  Returned  Goods 192 

P  Philadelphia  Machine  Shop 

P  1   First  Time  and  Bonus  Card 192 

2  Continuation  Bonus  Time  Card. .  193 

3  Day  Work  Time  Card 193 

3a  Day  Work  Time  Card  of  Belt 

Man 193 

4  Stores  Issue  Card 193 

5  Duplicate  Earnings  Record 193 

6  Detail  Cost  of  Worked  Materials  195 

7  Worked  Materials  Issued 195 

8  Stores  Credit 195 

9  Worked  Material  Credit 196 

10  Worked  Materials  Finished 197 

11  Balance  of  Worked  Materials.  .  . .    197 

12  Expense  Analysis  Sheet 197 

13  Income  for  Worked  Materials  and 

Stores  Sold 197 

14  Income  or  Profit  and  Loss  Account  198 

15  Expense  Distribution  Sheet 199 

16  General  Ledger  Balance  Sheet .  . .   200 
WW  Woodworking  Shop 

Time  Study  Blank 204 

Estimated  Annual  Machine  Bur- 
den    204 

Factory  Cost  of  Sash 205 

Cost  Accounts  for  a  Bakery 

Job  Ticket 206 

Daily  Cost  Card 206 

Power  Plant  Costs 
Pol.  1   Cost   of  Operation   and   Mainte- 
nance    209 

Figs.  1-3.  Curves  of  Standard  Costs.  .  .  211 

PP  Plimpton  Press 
PP  1  Record  of  Work  on  Composition 

and  Press  Room 214 

2  Record  of  Work  in  Bindery 215 

3  Stores  Issue  Card 216 

4  Stores  Credit  Card 216 

5,  6  Worked  Material  Issue  and  Credit 

Cards 216 

Printer's  Standard  Cost  System 
9  H  Monthly    Statement   of   Cost   of 

Production 218 

259 


PAOB 

LM  Lanston  Monotype  Machine  Co. 

Efficiency  Records  for  Keyboards  220 
Efficiency    Records    for    Casting 

Machines 222 

Monthly   Profit  and   Loss  State- 
ment    221 

F  Federal  Printing  Co. 
F  1   Estimate 224 

2  Proposition 225 

3  Order  Ticket 226 

4  Weekly  Time  Ticket 227 

5  Proof  Room  Ticket 227 

6  Composition  Ticket 227 

7  Linotype  Daily  Record 227 

8  Cylinder  Press  Ticket 228 

9  Bindery  Daily  Time  Ticket 229 

10  Maintenance  Ticket 229 

11  Daily  Composing  Room  Returns.    230 

12  Composition   Returns,   Recapitu- 

lation    230 

13  Composing  Room  Payroll 231 

14  Press  Returns 231 

15  Recapitulation  Cylinder  and  Pla- 

ten Press  Records 232 

16  Pay  Voucher  and  Pay  Receipt..  .    232 

17  Binder  Returns 233 

17a  Index    of     Kind     of    Work     in 

Bindery 234 

18  Electric  Light  and  Power  Meter 

Readings 234 

19  Press  Room  Pay  Roll 235 

20  Sales  for  the  Month 235 

21  Sales  Ledger 235 

22  Cost  Ticket  and  Billing  Record .  .   236 
Miscellaneous  Forms 

ATJ  1  Workman's  Absence  Report 243 

2  Workman's  Rating  Report 244 

3  Idle  Machine  Record 244 

4  Idle  Time  Record 244 

5  Man's  Job  Card 245 

6  Premium  Carry  Over  Card 244 

C  1  Shop  Order 245 

2  Master  Route  Card 245 

3  Production  Card 245 

4  Record  of  Progress  of  an  Order .  .    246 

5  Production  Card,  Overtime 246 

6  Repair  Order 246 

7  Forwarding    Ticket    and    Identi- 

fication Coupon 246 

LS  Job  and  Time  Ticket 247 

NE 1  Clock  Time  Card 247 

NE  2  Job  Card 247 

PR  Common  Form  of  Pay  Roll 247 

CR  Cost  Record 247 

PW  Plant  Work  Job  Card 248 

LC  1  Buffing  and  Polishing  Job  Ticket.  248 

2  Analysis  of  Pay  Roll 249 

3  Pay  Roll  Distribution  Voucher  .  .  248 
JF  Piece  Work  Job  Ticket 250 

W  23  Report  of  Delayu 250 

CC  Stock  Tracing  and  Cost  Sheet. ...  250 


INDEX  OF  AUTHORITIES  QUOTED 


Annett,  C.  B.,  and  Cunningham,  C.  F..   206 

B 

Babcock,  Geo  D 119 

Burton,  F.  G 123 

C 

Carpenter,  C.  U 120,  123,  124 

Church,  A.  Hamilton 120,  123 

Cincinnati  Milling  Machine  Co 124 

Collins,  James  H .  .  . 110 

Crozier,  Gen 94 

E 
Elbourne,  E.  T 110 

Emerson,  Harrington Ill,  126 

Engineering  (London),  Editorial  in,  119,  241 
Engineering  Magazine,  Editorial  in.  .  .  .    124 

F 

Federal  Trade  Commission 22,  94,  129 

Federal  Printing  Co 224 

Franklin,  B.  A 92,  120,  121 

G 

Gantt,  Henry  L 105,  123,  241 

Geijsbeek,  John  G 240 

General  Electric  Co 128,  238 

Gilbreth,  Frank  B 92,  103 

Godfrey,  Hollis 124 

Gunn,  J.  Newton 120,  122,  123 


Haas,  H 88 

Hale,  R.  S 122 

Hathaway,  H.  K 131 

Hearne,  R.  J 90 

Humphreys,  Alex.  C 86,  92 

Hurley,  Edward  N 94 

J 

Joseph  &  Feiss  Co.,  The 249 

K 

King,  Major  O.  M 93 

Kirchhoff,  Chas 106 

Knoeppel,  C.  E 122 


Lanston  Monotype  Machine  Co 221 

Lewis,  E.  St.  Elmo 92,  121,  122,  178 

M 

Metcalfe,  Capt.  Henry 92,  251 

Miller  Lock  Co 57 

Miller,  W.  M.  S 126 

Milliken,  J.  B 91 

Morse,  John  G 91 

N 

National  Meter  Co 99 

Nicholson,  J.  Lee 102,  120,  121,  123 

Norris,  H.  M 86,  121 


Orcutt,  H.  F.  L 119,  241 


P 

J-AOE 

Parkhurst,  F.  A \iJ 

Pennsylvania  Steel  Co 170 

Piez,  Charles 89 

Plimpton  Press 214 

R 

Polakov,  Walter  N 203 

Roland,  Henry 121 

S 

Sailes,  W 133 

Scovell,  Clinton  H 120,  122,  124 

Smith,  Gershom 48,  84,  120,  150 

Smith,  Oberlin 88,  132 

Stevenson,  Chas.  R 122 

Stratton,  Geo.  F 92 

Sturgess,  John 123,  127 

T 

Taylor,  Frederick  W 131 

Thompson,  C.  Bertrand 92,  120 

Towne,  Henry  R 107,  120,  127 

W 

Walton,  Albert 151,  164,  171,  173 

Webner,  F.  E 122 

Wheeler,  Col.  C.  B 112 

Wheeler,  S.  S 120 

Westinghouse  Electric  &  Mfg.  Co..   128,  239 


261 


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